The Federal Deposit Insurance Corp. (FDIC) said Thursday that more lenders ran into financial trouble during the second quarter as the recession continued to saddle banks with soured loans. 

The number of troubled banks rose to 416 at the end of June from 305 at the end of March.  This is the largest number of banks on its “problem list” since June 30, 1994, when 434 banks were on the list.  This brings the total assets at troubled banks to $229.8 million billion, that’s right with a “B”, the highest level since Dec. 31, 1993 according to the FDIC.

Keep in mind that the total reserves of the Deposit Insurance Fund  stood at $42 billion, with the contingent loss reserve falling to $10.4 billion from $13 billion over the second quarter.  Some analyst have been warning that growing bank failures could put pressure on the FDIC fund.  (FDIC: Number of troubled banks rises to 416)

This confirms to me that there are a lot more bad loans than the banks are portraying.  Most likely these loans are being covered by accounting fraud.  Therefore it is logical to believe that the problems are worse than we are being told and 400 is a hopeful number, not a realistic number.  I wouldn’t be surprised if bank failures reached 8 – 12 /week. 

What does this mean for real estate investors?  It means that you need to continue to buy wholesale real estate!  With banks in the process  of recognizing loan losses and cleaning up their balance sheets, properties will continue to be available for wholesale prices through foreclosures, short sales, and FSBO’s, due to the fact that they will be unable to compete.  Investors need to continue to buy wholesale real estate.