Ignored Regulatory Guidelines Becoming Headline News

Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.
ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine

covers over 5,000 stocks every day.
A variety of newsletters and portfolios containing Suttmeier's detailed research, stock

picks, and commentary can be found HERE.
Suttmeier's Four in Four video can be watched on the web HERE.
October 21, 2009 – Ignored regulatory guidelines becoming Headline News
Ignored regulatory guidelines are becoming Headline News. The cost of letting C&D
and CRE exposures ride is now haunting the banking system. The FDIC sees more
bank failures coming. The Housing Slump returns as the $8,000 first time home buyer
tax credit fades into the sunset.
If our banking regulators reined in C&D and CRE lending, bad loans and bank failures
could have been prevented.
It was April 2006 in RealMoney columns when I first made the case that community and
regional banks would be vulnerable to overexposures to C&D and CRE loans. It was in the 4th
quarter of 2005 when the US Treasury, Federal Reserve and FDIC first floated the idea to
have regulatory guidelines to limit such exposures. In December 2006 regulatory guidelines
were formalized, and have been ignored ever since. Now, commercial real estate losses are
headline news.
The FDIC has a huge mop-up operation in place that will close 500 to 800 banks by the time
the Great Credit Crunch ends in 2011 / 2012 at the earliest. When you look at all FDIC-
insured banks 37.5% have overexposures to C&D and CRE loans. That’s more than 3,000
banks. I have been producing quarterly reports covering FDIC data since mid-2006, and the
most recent is available at www.ValuEngine.com.
Our banking regulators had the join guidelines, but did not enforce them and ignored
them.
The cost of waiting has depleted the FDIC Deposit Insurance Fund, and the FDIC will
eventually have to tap its $500 billion temporary line of credit with the US Treasury. I now see
estimates that the Deposit Insurance Fund will need up to $400 billion through 2013 to cover
up to 1,000 bank failures or closures through merger.
Most of the 99 bank failures year to date and 124 since the end of 2007 had overexposures to
C&D and / or CRE Loans. Now the FDIC will need guidelines to modify commercial real
estate loans, which will cost additional tax payer dollars.
FDIC Chair Sheila Bair Projects more Bank Failures
Commercial real estate, which is the bread and butter of community banks, is deteriorating
because of the weak economy. The 100th bank failure will likely come on this week’s Bank
Failure Friday. The FDIC expects the pace of failures to continue through 2010. My prediction
stands that 500 to 800 banks will fail.
Housing Starts remain weak
Housing Starts are at an annual rate of 590,000 in September, and builders are paring back in
anticipation of the end of the $8,000 first time home buyer tax credit set to expire at the end of
November. Housing completions declined 10.2% to a record low of 693,000 unit rate. Single-
family starts are holding up at a 501,000 rate. The National Association of Home Builders are
asking Congress to extend the $8,000 first time home owner tax credit.
Several congressional leaders want to extend the tax credit despite complaints of fraud and
Obama administration concerns about the costs. A cost study could be too slow to get the
credits flowing again.
First time home buyers, like my son who bought his home in 2009 are eligible for up to
$8,000, and there was no requirement to repay the money. In buying in 2009 the credit can be
applied to 2008 tax returns.
After waiting three months, my son received a letter from the IRS to provide proof of
purchase. The letter, dated October 2nd was received on October 16th and the IRS requires
the documentation within thirty days of the date of the letter. Anyone else having IRS issues
with this eight grand program?
Send me your comments and questions to [email protected]. For more information on
our products and services visit www.ValuEngine.com
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
ValuEngine.com
(800) 381-5576
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website
www.ValuEngine.com. I have daily, weekly, monthly, and quarterly newsletters available that track a variety of
equity and other data parameters as well as my most up-to-date analysis of world markets. My newest products
include a weekly ETF newsletter as well as the ValuTrader Model Portfolio newsletter. I hope that you will go to
www.ValuEngine.com and review some of the sample issues of my research.
“I Hold No Positions in the Stocks I Cover.”

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Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.

ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine

A variety of newsletters and portfolios containing Suttmeier's detailed research, stock

Suttmeier's Four in Four video can be watched on the web HERE.

October 21, 2009 – Ignored regulatory guidelines becoming Headline News

“I Hold No Positions in the Stocks I Cover.”

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