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Dallas Fed: 37% of restructured residential loans in 11th district redefault

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More than a third of restructured residential real estate loans held in banks across the Eleventh Federal Reserve District are delinquent, according to research by the Federal Reserve Bank of Dallas. However, the central bank district said this figure is more of an indication of the success of loan restructuring than a call for alarm. The Dallas Fed reported that, as of Sept. 30, the banks in its district held $1.6 billion worth of restructured residential loans, $592 million, or 37%, of which were troubled. When the Dallas Fed began reporting residential restructured loan data in 2008, its district banks held $76 million worth of loans and $45 million, or 59%, were in trouble. A restructured loan constitutes a modified repayment agreement between a lender and a borrower when the borrower is highly unlikely to meet the original terms of the loan agreement. Lenders may reduce the interest or principal of the loan. Banks renegotiate loans when they believe more favorable terms will increase the prospects of repayment. Although the amount of delinquent restructured loans seems staggering, the Dallas Fed said that in the context of a bank's entire balance sheet, they are merely a drop in the bucket. As of Sept. 30, restructured loans accounted for 2.6% of overall residential lending in the eleventh district. Restructured loans accounted for 17.4% of all troubled residential loans. On a national scale, the Dallas Fed reported that U.S. banks hold a total of $83 billion in restructured residential loans, more than four times the $19 billion held in 2008. About $31 billion of mortgages restructured this year are more than 30 days delinquent. Write to Christine Ricciardi.

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