If Charter Bank were to close, it would mean a new sign, but business as usual for most customers.
Jason Silverman borrowed the money to buy his home from Charter Bank, a decades-old Santa Fe institution. After three refinancings, Silverman, the cinematheque director for the Center for Contemporary Arts, has 14 years left to pay off the mortgage.
Silverman was surprised to learn—not from his longtime bank, but from SFR's blog—that Charter may be forced to shut down come January, following a federal crackdown on undercapitalized institutions.
It'd be a shame, Silverman says: He likes Charter. "Their rates would always be competitive," he says. "It's a loss in that sense."
Naturally, Silverman wants to know what would happen to his mortgage if Charter's assets were sold. The bank has been no help there.
SFR's call to Charter's Chief Financial Officer Russell Cummins was returned by spokeswoman Susan Millspaugh, who offered to send a statement. After SFR left her a message saying the situation demands more than a statement, Millspaugh did not send even the company's boilerplate.
But it appears Silverman and other Charter customers should be fine—as should the approximately 7,000 low- and middle-income homeowners with loans serviced by Charter for the New Mexico Mortgage Finance Authority.
"People may have to write their checks to a different place," MFA spokeswoman Leann Holt tells SFR. "We've already started moving [some Charter-serviced loans] over to US Bank…It's been a pretty seamless thing."
And customers with checking and savings accounts will be safe, too—deposits under $250,000 are backed by the Federal Deposit Insurance Corporation.
According to bankers and finance experts, if regulators were to force Charter to close, the process would be quick and painless, like a dental extraction under full anesthesia. The feds usually take over a bank after it closes on a Friday; by Monday morning, the bank would be reopened with new signage, following a sale pre-arranged by the feds. (The process of an FDIC takeover was entertainingly described in the March 27 episode of the radio show This American Life.)
Why is Charter at risk? SFR spoke to Charter President Glenn Wertheim about his bank's health earlier this year [Indicators, March 25: "Stress Test"]. He blamed the bank's troubles on its investment in loans for construction that stalled after the real estate market collapsed. "Even though we're seeing an increase in those troubled assets…they're not producing any severe losses," Wertheim told SFR.
But the feds saw a problem. Regulators say a bank is "well-capitalized" when it has enough capital to cover 10 percent of its assets, weighed according to risk. A Nov. 30 article in American Banker says Charter had a so-called risk-based capital ratio of just 1.98 percent as of Sept. 30.
On Nov. 20, the federal Office of Thrift Supervision sent Charter a "cease and desist" order that forbid it from entering any new business ventures and said the bank would have to be liquidated if it couldn't raise capital by January. The Albuquerque Journal and The Santa Fe New Mexican both covered the order in December, but downplayed its significance, blaming the fuss on overzealous regulators.
If OTS officers are overzealous, they're not bragging about it. "We don't comment about enforcement orders or open institutions," OTS spokesman William Ruberry tells SFR in a voice mail. "We don't talk about the dates in that order or what might happen next or anything."
Some are asking what OTS actually does do. The formerly obscure agency was in charge of regulating the division of bailed-out insurance giant AIG that was partially responsible for the financial crisis. A bill working through Congress would replace OTS with a new so-called super-regulator.
Before the crash, Charter opposed rule changes that would have added transparency to its books, according to letters from bank executives to OTS made public by the agency.
According to a "bank tracker" tool hosted by American University that compiles FDIC data, Charter took a $57.7 million loss on assets of $1.25 billion in the last quarter. Few New Mexico banks—and no other Santa Fe-based banks—are faring so poorly.
Taos-based First Community Bank took a $79 million loss last quarter. FCB President Pat Dee tells SFR his bank is adequately capitalized, blaming its and Charter's problems on the economy. "You can say in hindsight we did more residential construction and land development loans than we should have, but three or four years ago, nobody foresaw the problems we're having today," Dee says.
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