Cash PrizeThe months following Hurricane Katrina a flood of cash poured into local banks as people deposited checks from FEMA and their insurance companies. A similar wave of money was predicted to flow once the state’s Road Home program finally geared up but local bank executives say that prediction hasn’t become a reality.Some bank officials assume people are using their Road Home checks to pay off credit card debt they incurred while waiting for the slow-to-start reimbursement program. Others think the money doesn’t have time to accumulate; as soon as they get their checks, flooded homeowners are plunging into reconstruction they had to defer for two years.“We haven’t seen a penny,” says Gasper Morici, senior vice president and senior lender for Omni Bank. “You can count on one hand how many (Road Home deposits) we’ve actually seen.” Morici speculates that either Road Home checks are being deposited into national bank chains rather than community banks or customers are spending the money quickly at such national chain stores as Lowe’s and Home Depot.Ashton Ryan, president of First NBC, says his bank hasn’t seen much Road Home action either and he’s heard the same story from other community bankers. At one time, experts predicted as much as $3 billion would be pumped into local banks via the flood reimbursement program. “What are people using it for?” Ryan asks, referring to the Road Home money.It could be that two years post-Katrina, people who debated whether to rebuild are finally making their decisions. When insurance checks were issued, the storm was so recent that many homeowners weren’t sure of their next moves. Some had to use the money to retire mortgage debt but others banked their cash, waiting to see what their Road Home awards would be. Joe Exnicios, executive vice president and metropolitan New Orleans regional executive for Whitney National Bank, calls the Road Home money “the last piece people need.” Homeowners now know exactly how much money they have to rebuild with and can now move quickly on reconstruction, if that is the route they’ve chosen.Road Home money that is being deposited into local banks might not be noticed because the deposits by some customers are being countered with withdrawals of insurance money by others, says Rusty Cloutier, president of MidSouth Bankcorp Inc., and past president of the Independent Community Bankers of America. The cost of rebuilding means people don’t have much left over from their reimbursement checks, he says. In fact, many homeowners are faced with a gap once they’ve used up their insurance and Road Home cash.National player Capital One, which moved into the local market via its purchase of Hibernia National Bank in November 2005, is one bank that has gotten a boost from Road Home checks. “We’ve seen a consistent flow of new accounts,” says Don Barnes, executive vice president and Louisiana bank executive. In August, Capital One inaugurated a special checking account for Road Home proceeds. The accounts pay 4 percent annual percentage yield for six months and clients can withdraw the money as they need it. The bank intends to keep the product available until the Road Home program closes up shop.The impact from Road Home also varies depending on where a bank’s branches were located. Karl Hoefer, president of the New Orleans market of Iberiabank, pointed out that his bank was relatively new in the New Orleans market, so few of its customers are taking part in the Road Home program. The same holds true for Hibernia Homestead, says President and CEO Peyton Bush. Bush points out that in addition, some customers who did flood are appealing their Road Home awards. The worry for these clients is that the program will run out of money before their cases are resolved.Mortgage action solidLocal banks are seeing more action in their mortgage departments and because they didn’t engage in the risky lending so many subprime mortgage brokers did, the banks aren’t feeling much heat from the national mortgage meltdown.“We have a very good pipeline of new loan requests,” says Omni Bank’s Morici. The loans are divided between homeowners and investors, with a slight emphasis on the commercial side. “We are seeing a lot of real estate deals,” he says. Most residential borrowers are using their loans to rebuild, Morici says.Mortgage money is available and rates are good but credit criteria have tightened up a little, Morici says. Self-employed people, for example, may need more proof of what they actually draw from their companies. But for people with a decent credit score and a W2 income, opportunities are good, he says. Mortgage activity is strong at Fidelity Homestead Savings Bank, says Boyd Boudreaux, president and CEO. Mortgage brokers burned in the subprime market have left the scene, he says, and borrowers are turning to institutions like Fidelity instead. “As a community bank, we fund our mortgages from our deposits and don’t rely on secondary sources,” he says.“Funds are available and relatively low-priced,” Boudreaux says, quoting as an example a 30-year fixed rate mortgage in the 6.5 percent range. Ryan of First NBC calls loan demand at his bank fabulous. “We have over $100 million in the pipeline,” he says, citing loan action of as much as $15 million in a given day. The loans are a mixture of rebuilding, renovating and commercial borrowing, Ryan says, and rates are good. For most borrowers, obtaining affordable insurance is more of a problem than getting a mortgage, he says.The story is much the same at Gulf Coast Bank & Trust, says President Guy Williams. If you have good credit and a down payment, loan rates are good, he says. If you have one or the other, you can still get a loan but those lacking both are out of luck, he says.At Iberiabank, there is very strong availability for loans under about $417,000, Hoefer says. To make loans above that amount, “your credit ability really comes into play,” he says.In terms of dollars, mortgage volume may be down because the houses selling right now tend to be in the lower price range, Williams says. “We have a tremendous supply of expensive houses” in the New Orleans area, he says. “The high-end (market) is as bad as I’ve ever seen it.” He points to the fact that some corporate headquarters left town after buyouts; when Capital One bought Hibernia, for example, some high-paid executives were transferred. “It’s always a tragedy when you lose a local company,” he says. The city also experienced tremendous losses in the medical community, Williams says.Bush says mortgage action at Hibernia Homestead is a little slower than that of 2006, but the lender is seeing applications from people who were stung in adjustable-rate programs that started off with unbelievably low “teaser” rates but then climbed higher than the borrower’s ability to pay. Many of these applicants are surprised to find out they can get a fixed-rate mortgage that still works for their income, Bush says.Adjustable-rate mortgage loans are appropriate in some situations, Bush says, but when Hibernia Homestead makes them, the lender always assumes the borrower will have to pay the higher rate eventually.Because Louisiana didn’t see as sharp a spike in home values as such states as Florida and California did, the slowdown in the residential real estate market hasn’t hit us as hard, says Rob Stuart, president of Capital One Louisiana.Exnicios of Whitney says his bank hasn’t been affected by the subprime mortgage crisis either. “The subprime (market) was already a source of last resort,” he says.Bank executives say the current mortgage drama was a disaster in the making for some time, as brokers financed closing costs, made loans with minimal or no down payments and gave borrowers adjustable-rate loans that pushed monthly payments well beyond the customer’s ability to pay. People who counted on the cost of their house escalating before the interest rate did may now find themselves upside-down, Exnicios says, with a house that’s worth less than they paid for it.Foreclosure – a word striking fear in many parts of the country for these unhappy borrowers – doesn’t seem to be much of a problem in the New Orleans area. “Banks have been very patient, working with customers,” Morici says; his bank has experienced only a few foreclosures.No foreclosure worries are expected at Fidelity Homestead, Boudreaux says. Insurance proceeds paid off many mortgages already, he says. He also cites the fact that Fidelity, like most local lenders, stuck to more conservative lending practices. “You could see this would happen” in other markets, he says.

Williams of Gulf Coast Bank & Trust says that his bank’s delinquency rate is below the national average, due in part to the fact that borrowers had flood insurance. “Everyone expected (foreclosures) but we didn’t see it,” he says.

Cloutier says he doesn’t look for foreclosures to become a problem down the road, either, especially with oil in the $80 per barrel range and jobs in South Louisiana remaining plentiful. “We are not Michigan,” he says, referring to the manufacturing state struggling with high unemployment.

Looking forward to ’08
Despite worries over the pace of hurricane recovery, most bankers are optimistic about 2008 – some tempering their optimism with a caution that results depend on a number of factors, including a few more hurricane-free seasons.
“I think we’re facing a good year,” says Morici. He expects more rebuilding in the metro area and along the Gulf Coast. Omni opened a new location in Metairie at Clearview Parkway and West Esplanade Avenue and will build a full-service branch on Lapalco Boulevard on the West Bank, where it currently works out of a trailer. A new French Quarter location has opened and plans are in the works for branches on Metairie Road and on Veterans Boulevard. Omni has a loan production office on the Northshore and will build a branch in Mandeville.

Things look good for Capital One Louisiana, Rob Stuart says. “We’ve maintained our leadership role and our involvement in the city is strong.” He cites renovated and reopened branches in Eastover, Mid-City and the university area and a brand-new, 7,000-square-foot branch on Canal Boulevard. The bank also intends to expand its reach on the Northshore.

One drag on the market could be the high inventory of homes priced at more than $300,000, says Boudreaux of Fidelity. The cost of insurance, rising tax assessments and uncertainty over which neighbors are rebuilding could also slow the pace of the recovery, he says. Fidelity still has two branches that haven’t reopened since Katrina, one in Chalmette and one in eastern New Orleans. The New Orleans branch should reopen soon but the Chalmette location is still a question mark, Boudreaux says. “That market is still torn up.”

First NBC is expecting a very good 2008, Ryan says, as more people receive their Road Home checks and more money is pumped into the economy through infrastructure projects. People who have been in disputes over their business interruption insurance are finally seeing those cases settled, Ryan says, and that money should hit the market, too.

Williams says he thinks the area’s recovery from the storm has been much slower than anticipated and points out that the population is still down by some 100,000 people. Gulf Coast, which had nine branches pre-Katrina, has 12 now and is $200 million bigger than before the storm. The bank specializes in entrepreneurial lending, he says, and will grow as the small-business market does.
New Orleans remains a stable market, with affordable mortgages and homes, Exnicios says, and jobs should remain plentiful as infrastructure projects get off the ground. The Federal Reserve’s rate cut in September had a positive effect on credit rates, he says.

Iberiabank is “bullish” for 2008, says Hoefer. The bank, which is headquartered in Lafayette, has opened 12 branches between Baton Rouge and New Orleans since Katrina and has added more than 80 employees. Recently the bank unveiled its first full-service downtown New Orleans location on the first floor of the Pan-American Building on Poydras Street; its corporate offices and other divisions remain on the building’s 20th floor. Hoefer says the bank sees growth on the Northshore, in Laplace and Houma and throughout the entire region, especially in the retail sector.

Exnicios says those worried about the recovery of the New Orleans region have to take into account a few intangibles, including the resiliency of the people who live in the community. “Never underestimate memories,” he says, explaining that plenty of people want to remain in, or come home to, the neighborhoods where they grew up, went to school and raised their families. It might take longer than anticipated but New Orleans should find itself in a better position as time goes on and more neighborhoods are rebuilt.