Everett, Wash.
Published: Monday, May 19, 2008

Banks still safe place, FDIC official says

By Mike Benbow

 At a recent conference in Baltimore, I had a chance to meet Sheila Bair, chairwoman of the Federal Deposit Insurance Corp, the federal corporation in charge of making sure that people with money in the bank don't lose it.

Bair had a lot to say about the economy and how we got into the mortgage mess, but her main message is that the FDIC program is strong and that people shouldn't be fearful about their bank deposits.

"Ninety-nine percent of the banks are still profitable," she said. "Small banks are doing better than big banks. The insured deposits are quite safe. They're absolutely safe."

For those not familiar with the FDIC, it was created in 1933 after so many people were left in financial ruin by the bank failures of the Great Depression. In a nutshell, it insures individual deposits up to $100,000 at a single bank. Amounts over that at the same bank would not be covered, but you could put $100,000 at a host of different banks and it would be insured at each one.

Bair said shady characters are confusing people these days, making them think their money is at risk because of the mortgage mess.

"For bad reasons, people are trying to scare others so they can sell them gold and stuff like that," Bair said. "I'm concerned because they want them to pull their money out of bank accounts that are quite safe and to put them into something speculative."

Bair asked the group of journalists to pass that message to consumers. So there it is: Consider yourself informed.

After passing along the message, Bair was nice enough to answer a bunch of questions about the nation's mortgage problems, which all boiled down to different versions of "How the heck did we get in this big mess, and how do we get out of it?"

The problem, she said, can be simplified by saying that too many financial companies bought securities based on mortgages that people couldn't afford. Many mortgages didn't require people to provide an income statement that could be checked and verified.

"It's not rocket science to do that, but somehow we lost our way on that," Bair said.

People were given low-interest loans for the first couple of years, then found themselves with rates that had been reset at levels they couldn't pay.

Bair stated the obvious in noting that we now have to make sure people get loans they really can pay, but she also supports help for people who have loans with rates reset beyond their means.

She said their starter rates should be extended for five years so buyers can pull themselves out of their problems.

But Bair rejected the idea of government help or tax breaks for people whose home equity dropped significantly, leaving them upside-down on their mortgages -- owing more than the home's current market value.

For her, the key is whether buyers can pay, not whether potential earnings have hit the skids.

"You should stay with the mortgage and ride it out," she said. "We need to help those who can't afford their mortgage as opposed to those who just lost value."

Bair said the first problem in need of attention "is getting those foreclosed homes off the market."

Once those are sold, builders can go back to building new homes and people can go back to buying them, although loan terms will undoubtedly be more stringent.

Here in the Northwest, we have one of the healthiest housing markets in the nation. We didn't give out as many "easy" loans, we have a stronger economy and the population is either growing or holding steady.

But we aren't isolated from the problems. Foreclosures here have grown, inventories are low, people aren't sure if they should buy now or wait to see if prices will go down, and many builders are also waiting things out for the market to improve.

I agree with Bair. We need to help those about to lose their homes continue to stay in the market and figure out a way to resolve their debts. That's the only way we're going to get things here back on track.

Mike Benbow: 425-339-3459; benbow@heraldnet.com.
© 2009The Daily Herald Co., Everett, WA