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Risky lending practices plummeted the U.S. economy during the Great Recession, but banks returned to solid financial footing more than a decade later, seeking to save businesses on the brink of collapse due to the coronavirus pandemic.
In addition to Maine banks processing nearly 26,000 repayable federal loans worth $ 2.6 billion to local small businesses, they were waiver of fees and postponement of certain loan payments for those who want money.
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Mortgage payment deferrals make an immediate difference for businesses. Tourism businesses such as hotels have become big takers of postponements, helping to make up for lost revenue from the virus-delayed start of their season. Hotels often postpone mortgage payments for three months, and in most cases, this delay will be added to the end of their loan.
Experts also expect residential deferrals on all types of loans to increase in the coming weeks. Credit scores are not affected by deferrals. Some 3.8 million US homeowners are on forbearance plans, according to the Mortgage Bankers Association in Washington, DC
“Most people have probably made their April payment,” said Greg Dufour, president and CEO of Camden National Bank. “It’s when they make their May or June payment that the residential side will start to pick up. “
Camden National already has deferred payments on over 1,500 loans of all types with a total outstanding balance of nearly $ 550 million. The bank transferred nine employees with other duties to the teams dealing with the large number of deferral requests.
“The majority of deferrals have come from hospitality and accommodation in dollar terms so far,” Dufour said. The bank’s total loan portfolio is $ 3 billion, so carrying over almost 20 percent of that money is “a pretty big percentage,” he said.
Dufour expects more postponement requests because Governor Janet Mills’ gradual economic reopening plan, which began on May 1, continues. The plan would lift restrictions on restaurants and hotels from June through August, including 14-day quarantines for out-of-state visitors who have untimely bookings in the tourism industry.
This industry is an important part of Maine’s economy, contributing $ 8 billion last year. Dufour said there would be a ripple effect on government revenues over the next few months when businesses pay less in taxes due to downsizing.
Machias Savings Bank has processed more than 1,000 deferrals of all types of loans, including 274 for residential loans, said Larry Barker, the bank’s chief executive officer. He said a large portion of the postponements were for hotels and restaurants.
“I was [in banking] for 30 years. We have never, as an industry, provided almost universal deferral of payment before a recession, ”said Barker. “On top of that, there are billions of dollars in stimulus. But that certainly does not put us as a state in a position to skip a tourist season. “
This is a possibility far too real for Ted Hugger, owner of the Cod Cove Inn in Edgecomb and the Cedar Crest Inn in Camden. He has three month loan deferrals for both hostels.
With COVID-19 measures being extended until the summer, Hugger is unsure whether he will have to request extensions to his postponements or whether he simply will not be able to stay in business this season.
“The question is, ‘Are the banks going to work with you and when does it become a wasted effort?’ “, did he declare.
Right now, banks are ready to work with customers to keep them afloat. It is only when companies fail that banks suffer losses, said Jim Donnelly, commercial director of Bangor Savings Bank, which, along with Camden National, is one of the state’s two largest banks.
“We don’t expect any real losses until the end of the year or the start of next year,” he said. “We are far more prepared to weather a storm than in the last recession. We can take this for a long time, for years. He said banks insured by the Federal Deposit Insurance Corporation have strong balance sheets and good incomes.
Camden National’s Dufour agreed, saying the extent of the harm to businesses depends on how quickly the coronavirus can be reduced and society returns to normal.
This is a far cry from the situation of US banks during the subprime mortgage crisis that triggered the Great Recession from December 2007 to June 2009. During this period, 168 banks closed their doors, according to the Federal Deposit Insurance Corporation. There were only four closures in 2019 as banks boosted their capital under stricter regulations and a 11-year wave of economic growth which ended abruptly with the pandemic.
“During the Great Recession, lenders and agents gained a lot of experience working with problem loans,” said Jamie Woodwell, vice president of commercial real estate at the Mortgage Bankers Association.
