Housing Chill Begins to Pinch Nation's Banks

Good news/bad news time for the current housing market:

Good News: The housing market is cooling, which means prices might be coming down, which means that it?s very unlikely my old two-bedroom apartment will sell for the ridiculous asking price of $500,000. $500,000, people: and the elevator never worked properly.

Bad News: The housing market is cooling down, which means that if you?re a bank the slowdown might be hurting your business.

FirstFed Financial Corp., a Santa Monica, CA, bank with a fairly large mortgage business, reported in a securities filing Monday that its mortgage originations were down 47% in July from year-earlier levels. First Horizon National Corp., a Memphis, TN, bank that sells home loans across the country, added its tale of woe to the mix, saying it expects mortgage originations to fall by $1 billion in the third quarter due to a falloff in applications.

According to a story running in today’s Wall Street Journal, ?Banks have ridden the real-estate boom over the past five years by pitching traditional loans, newfangled mortgages and home-equity loans that can be used to pay off credit-card bills or fund a new plasma-screen television.?

Still ? real estate still amounts to a pretty significant chunk of banks? assets: 33.5% of the U.S. banking industry’s $9.298 trillion in assets in July, according to the Federal Reserve. The numbers represent the highest level in the Fed’s database going back to 1973.

The mortgage market today is filled with many new types of loans that are causing some worry, since they increase banks? exposures in ways that weren?t heard of in past housing downturns. However, bank executives and Wall Street analysts aren?t yet expressing panic-filled concern about the prospects for a big increase in mortgage delinquencies or defaults, particularly if unemployment stays low and the economy shows signs of strength despite high gasoline prices.