Florida Money Plentiful, Loans Are Not

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Florida Money Plentiful, Loans Are Not

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As the housing and mortgage crisis seems to be nearing an end, banks in Florida, one of the harder hit states, are reporting record levels of money on deposit. Five years ago banks in Lee County had slightly over $10 billion in deposits. Today that number is closer to $12 billion. Collier County's deposits are also up.

With that much money being held on deposit, most people do not understand why banks are not lending to potential homeowners. After all, bank lending is essentially based on how much money banks are holding in deposits, that results in a number called their ratio of capital to loans. The first problem with lending is the increased rules imposed by federal regulators.

The tidal wave of mortgage defaults on loans made during the boom has placed bank lending policies under considerably more scrutiny. Banks are required to maintain a good ratio of capital to loans and many banks are reluctant to make loans because it will lower their ratio and attract regulator scrutiny.

Another lending problem is a direct result of the increase in bank deposits. People that might have been shopping for a home loan a few years ago are now putting their money in insured bank accounts for safety and not borrowing money like they did a few years ago.

Bank deposits are insured while stocks and real estate are not. Bank deposits are also less risky. People that lost during the real estate meltdown are now trying to rebuild their nest eggs and avoid risk.

Banks are also shifting to the safe side in their lending practices. During the boom, banks relied on real estate values to cover a loan balance. The drastic fall in real estate values means banks are now loaning money on borrower's cash flow rather than equity. Banks that suffered large portfolio losses are even more diligent when evaluating any borrower.

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Tags: • portfolio • borrowers • safety • homeowners • banks • mortgage • florida • cash flow • real estate • bank accounts • home loan • bank deposits • lending policies • mortgage defaults • mortgage crisis • real estate values •

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