Sunday, March 11, 2012

Church foreclosure U.S.A.

The article starts this way.

Tim Read, Reuters, 8 March 2012 (Hat tip: NC)

·        Churches hit by credit bubble, some devalued.
·        Churches faulting, struggling with "balloon" payouts
·        Banks say church foreclosure last resort

LOS ANGELES, March 9 (Reuters) - Banks are foreclosing on America's churches in record numbers as lenders increasingly lose patience with religious facilities that have defaulted on their mortgages, according to new data.
The numbers they are talking about are not huge.  They note 138 churches as defaulting in 2011, up from just 38 in 2008.  These are not huge numbers. Wake County, North Carolina (location of State Capital), one of a hundred counties in North Carolina, lists 404 churches just by itself. The article states that there are over 300,000 churches total in the United States.
Church defaults differ from residential foreclosures. Most of the loans in question are not 30-year mortgages but rather commercial loans that typically mature after just five years when the full balance becomes due immediately.

Its common practice for banks to refinance such loans when they come due. But banks have become increasingly reluctant to do that because of pressure from regulators to clean up their balance sheets, said Rolfs.

"A lot of these loans were given when the properties were evaluated at a certain level in 2005 or 2006," Rolfs said. "Banks have had to reappraise the value of these properties, whether it's a church or a commercial office building. Values have gone down, so the loans cannot continue in the same form."

I am sure that there are churches that have over extended themselves.  And most of the time the bank doesn’t have much choice but to negotiate a deal:  on the resale market, I am sure churches loose much of their values.  But within the body of the story, you are hearing something similar to what was going on in the housing market.

"The bank has refused to negotiate and to this day I just don't know why," said Binita Miles, the church pastor.


PioneerPreppy said...

MY guess is that just like the home loans the banks in question have actually sold the loan and just acted like a collection agency. They do not want to negotiate a new loan because if they do they then become the actual loan holder once again.

The banks are simply over extended and no longer have an outlet for the loans once they are made. Not enough capital left I guess.

russell1200 said...

I have a follow up article ready for tomorrow which discusses the same thing going on in business related commercial loans. It is by our local (Raleigh anyway) News and Observer, and is actually a much more thorough article.

This type of loan was not generally sold. The banks usually wanted to have an ongoing relationship with the businesses so that they could get the follow on loans for trucks, tools, equipement etc. It is also one of the few areas the smaller commercial banks were not squeezed out by the securitization of the big boys. So the smaller banks wound up overexposed to small companies in the construction industry.

My wife noted that these loans amortize over 20 years, even though the terms are set at five. Presumably that means that the banks get less in the way of interest on each succeeding loan.

Humble wife said...

I have to admit this post clears up some things in my local community. I was wondering why several churches have up and left their buildings and are in new(but different digs). In fact-one church rented a bar that had closed, and two are in commercial buildings now.

All makes sense to me in these times.