New Loans, MSRs Get FDIC Scrutiny.

Washington -- In 2004, HELOC borrowings grew at a 41.8% annual rate, raising regulatory concerns and warnings that lenders should tighten underwriting and risk-management practices. The regulators also noted a decline in the value of mortgage servicing rights.

By the first quarter of 2005, HELOC lending slowed to a 34.9% annual growth rate and now the second report shows that it has declined to a 28.4% annual growth rate.

The FDIC also reported that commercial banks are holding more adjustable-rate mortgages in portfolio, although bank call report data do not indicate if these adjustables are hybrids, interest-only or other exotic loan products.

"Over the last four quarters almost two-thirds (65.4%) of the increase in residential loans at commercial banks has come from ARMs," the FDIC said.

At the end of the second quarter, banks held $1.16 trillion in single-family loans in portfolio, and 36.6% of these first liens, or $425 billion, are ARMs.

Meanwhile, commercial banks reported earnings of $28 billion in the second quarter, up 5.1% for the same quarter last year. The FDIC cited lower earnings at a few large banks for the slowdown in earnings along with other ...