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[OTS] 1-4 Family Charge-Offs Rise Significantly, March Madness Continues

The Office of Thrift Supervision (OTS) is the US Treasury department regulates the S&L industry. It was created in 1989 after the S&L crisis and is the by-product of FIRREA which also created appraiser licensing (the acronym does not stand for Finally I can be a Rich Real Estate Appraiser, that many appraisers sarcastically joked about nearly 20 years ago).

Remember the S&L crisis? Deregulated S&L’s invested in high risk real estate deals to generate better returns, resulting in a financial implosion (deja vu?)

Charge-offs are liabilities deemed uncollectible.

Charge-off rates were 0.25% in 1994 [1] as the economy was coming out of a recession in 1990-91 when the rate was 0.61%.

Here’s the OTS director’s testimony in 2001.

Loan charge-off rates have also remained at low levels. [2] Net charge-offs as a percent of total assets were 0.19 percent (annualized) in the first quarter, down slightly from 0.20 percent in 2000. The low charge-off rates reflect the high quality of thrift loan portfolios, which are heavily concentrated in single-family mortgages. Charge-off rates for single-family mortgages are generally very low compared to other types of loans. The loan charge-off rate was 0.05 percent of all single-family mortgages in the first quarter (annualized), or $50 per $100,000 of loans.

From the chart, 1-4 Dwelling units have seen nearly 6 fold gains from .039% in 2003 to .217% in 2007.

Its not the actual number that alarms me, but rather the trend of charge-offs.

Of course, what about 1998? [3] [warning, adult language]