Superior Bank probably won't be the only thrift institution with a high concentration of subprime mortgages to go under, a key government official warned last week.

In what was probably her final quarterly briefing with reporters as director of the Treasury's Office of Thrift Supervision, Ellen Seidman said more failures among savings and loans and savings banks which lend money to customers with poor credit records. "This is an awfully risky business," she said.

Seidman also told reporters that future failures would even less of an impact than Superior's collapse. Though the Hinsdale, Ill., federal savings bank was an $1.8 billion institution when it crashed in late July, it had only a negligible effect on the $965 billion thrift industry, which saw earnings rise to a record $2.5 billion in the second quarter, the regulator said.

At the same time, the outgoing OTS director conceded that despite her agency's best efforts, more insolvencies are likely. "Yes, we expect more failures," she said. "Who, where and what size? We have no way of predicting."

Seidman said six of the thrifts on the current list of 17 "troubled" institutions, including Superior, are "aggressive subprime lenders," which she defined as institutions with more than 25 percent of their capital in a subprime lending program.

She refused to name the troubled lenders, explaining that to announce which institutions are having problems would cause a "liquidity failure" and increase the hit on the deposit insurance funds as savers remove their uninsured funds.

Despite opposition from some lenders who complain they are being picked on unfairly, she also said the OTS and other financial regulators are "moving ahead" with tougher requirements aimed at forestalling their demise. "Management is fighting back very hard," she said. "But we've got all the regulators on the same page," she said. "Now this needs to be done quickly."

The OTS director also stressed that only 32 thrifts -- "a very small percentage" -- are involved in the subprime sector to any great degree. While some are "more dedicated" than others, many "are the salt of the earth, portfolio lenders who have been doing (subprime) for 20 years" and still others are active in the sector only "as part of a larger portfolio."

During Seidman's four-year watch, just two other subprime thrifts besides Superior have bitten the dust, and the total cost of their demise to taxpayers was only $2 million. And Superior's assets amount to less than 0.25 percent of all thrift assets.

Though Superior's failure "caused a lot ink," she said, "it was a very small part of an industry that is doing quite well," she said.

On the mortgage side of the business, thrifts set a new record in the second quarter, and are on a six-month pace to pass their annual originations record set in 1998. "We are in a boom," Seidman declared.

Thanks to stable rates and heavy refinancing activity, thrifts wrote $109.6 billion worth of 1-4 family loans in the quarter. That's an increase of 48 percent from $74.3 billion in the first quarter. In total, the thrift industry's share of all 1-4 family originations rose from 21.2 percent to 22.9 percent.

For more articles by Lew Sichelman, please press here.

Published: September 10, 2001

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