Mortgage Losses Add to Banking Industry's Woes.

Byline: Brian Collins

Washington-Loan performance continued to deteriorate in the third quarter as banks and thrifts added $50 billion to loan-loss reserves for the second consecutive quarter, according to the Federal Deposit Insurance Corp.

Defaults on residential mortgages and construction lead the way, according to FDIC chairman Sheila Bair, and problems are spreading to other consumer loans and commercial loans. The percentage of non-current single-family loans (90 days or more past due) jumped to 3.9% in the third quarter, up from 3.3% in the second quarter. Charge-offs totaled $8.5 billion, down from $9.6 billion in second quarter. (It is understood this decline could reflect the takeover of Washington Mutual by JPMorgan Chase.)

For construction loans, the non-current rate hit 10.8% in third quarter and charge-offs totaled $1.9 billion.

"Many institutions are aggressively growing reserves. But overall reserve growth continues to lag behind the growth of troubled loans," the FDIC chairman said.

Banks and thrifts posted combined earnings of $1.7 billion in the third quarter, down 94% from the same period in 2007.

But commercial banks and savings banks continued to originate single-family loans.