US Thrifts Reserved $7.6 Billion for Future Loan Losses in First Quarter

US Thrifts reserved $7.6 billion in the first quarter for potential loan losses, the Office of Thrift Supervision reported on Tuesday. Thrifts lost a total of $617 million in the first quarter of 2008. Although this loss looks absolutely spectacular compared to the $8.75 billion that Thrifts collectively flushed down the toilet in the fourth quarter of 2007, it is somewhat shabby compared to profits of $3.61 billion in the first quarter of the previous year. OTS Director John Reich has been urging Thrifts to be aggressive with their loan loss provisions. Mr. Reich's suggestion was based on a troubling increase in loans at least 90 days past due, which rose to 1.78% of assets at the end of the first quarter. The worst performing loans were construction loans, 6% of which were noncurrent at the end of the first quarter, up from a mere 1.23% a year ago. This should not surprise anyone who has visited Miami, Phoenix or Vegas lately and seen the deluge of construction cranes dotting the skyline. Single-family loans at least three months overdue climbed to 2.85% from 1% in the first quarter of 2007, also not surprising to anyone following the residential real estate market. Thrifts have responded by reducing their originating activities in the first quarter by 21% from the fourth quarter of last year to $133.7 billion. I suppose if your underwriting abilities are that lousy, the best way to avoid future losses is to make fewer loans.