East Texas economy good says local banker; don't panic

As Wall Street and foreign stock markets reel from the nobailout vote in the U.S. House of Representatives Monday, one local banker says the economy in East Texas is good, credit is available and your moneyin local banks is safe.

Larry Haire, president and CEO of Kilgore National Bank, said yesterday his bank has money to lend and it's in no danger of failing. KNB is doing business, as usual.

"We're not tightening up or using any different credit criteria than we used last year or the year before," Haire said.

His advice: Don't panic, Main Street — local banks are sound.

"Credit is not drying up in Kilgore or East Texas generally, other than the fact that over the past year there have been several of these high-flying mortgage companies that have gone out of business," Haire said.

The banker credits the upswing in the oil and gas industry, Kilgore's location and the fact that Texas leads the country in business benefits.

"Texas is centrally located and we have a strong highway system and a strong labor force," Haire said. "But, at the end of the day, we're still affected by what's going on in the rest of the world."

He explained the "megabanks" which seem to be imploding on the national scene are different than area banks in many ways.

"Local community banks throughout the country are not experiencing the problems that these larger commercial banks are having right now," he explained. "Most of the local banks are supervised by regulatory agencies. In our case it's the Office of the Comptroller of the Currency (OCC). State banks are regulated by the FDIC, the Federal Reserve and the state banking commission. All of these banks are supervised by those agencies and audited on at least an annual basis."

Local banks and bankers are pretty conservative when it comes to making loans. Those who qualify for subprime mortgage loans are referred to subprime lenders, which most area banks are not.

According to www.investopedia. com, subprime mortgage loans are available to people with poor credit histories who do not qualify for conventional mortgages — basically, they're risky business. Since they are risky investments, the lenders have been allowed to charge higher interest rates.

In a way, the subprime mortgage lenders are like tote-thenote car dealers, Haire explained.

Only the subprime mortgage lenders managed to package their risky loans and sell them to Wall Street investors. Add the fact that real estate values in markets such as Los Angeles, Las Vegas, Phoenix and Florida were over-inflated. Then add a lot of people who paid too much for properties they probably couldn't afford in the first place. As their numbers multiplied exponentially, the collapse we're seeing now was inevitable.

As with the stock market collapse in 1929, people basically bought with nothing down, not even closing costs. Many got adjustable rate mortgages. At first, those rates were low and affordable, then they skyrocketed and people who really couldn't afford their loans really couldn't afford their loans.

Local banks and their customers tend toward the fixed mortgage rate, Haire said.

"East Texans like fixed mortgage rates," Haire explained. "People take the adjustable rate mortgages because the initial interest rate is low, but then the rates can change annually or periodically. As the adjustable rates increased, those folks realized they can no longer afford their mortgage payments." Thus the increase in home foreclosures.

Though adjustable mortgage rates have been around since the 1970s, Haire said some guidelines were relaxed to the point that people were getting 100 percent financing plus closing costs.

"When they fail, they don't have adequate value in the real estate to support the loan balance. There's no equity for the homeowner or the banks. People think all real estate appreciates, but it can also depreciate. We're in the depreciation stage in other parts of the country," Haire said.

Kimberly McDaniel, a filing clerk in the Gregg County Clerk's Office, said foreclosures are running about the same as they did last year.

"We have been 35 and 40 foreclosures filed each month," she said. "We had one month with about 50 and that was our biggest month."

Haire said the proposed bailout that failed in Congress Monday is "more of a credit problem that's the result of the lack of sound loan underwriting practices.

"All of these mortgages are generally in the form of market securities — we're not talking about individual loans but mortgage-backed pools. If you own one in your portfolio, as the market changes the value of that security changes and you have to account for it on your books at the end of the day. In this case, those assets are being marked down in value and that markdown is where this $700 billion is coming from."

He noted a recent news article that talked about the fact that approximately 8 percent of U.S. banks are experiencing the problems making headlines.

"That means the other 92 percent are well-managed community banks that have experienced loan growth on a monthly basis for the past several months," Haire said.

KNB has been fielding calls daily concerning FDIC insurance, which Haire called "a logical reaction."

"Accounts are insured up to $100,000, and under FDIC rules and guidelines, there's a multitude of ways to style account ownerships and beneficiaries that basically would allow a family of four to have well in excess of $1 million insured by FDIC in one financial institution. That all depends on how their accounts are set up." Haire said.

As for the Wall Street bailout, Haire said he thinks some form of help is needed.

"However, I'm opposed to the fact that some of these companies are allowing executive officers to exercise their 'golden parachute' as they leave the arena," the banker said. "I don't think they should. I think the bailout should be used to stabilize the economy, but at the same time it should be an opportunity for regulators to find out who is accountable. Those folks that were less than honest and made financial decisions based on greed should have to pay or repay."

He adds that the financial institutions that are in trouble should be held responsible.

"In most cases, there are rules that apply for the liquidation of problem loans and problem assets, and I think those standards should be followed," he added.