Note 6: Loans Held For Investment: Mortgage Loan Policy (Policies)

12 Months Ended

Sep. 30, 2012

Policies

Mortgage Loan Policy

As of September 30, 2012, the Bank had $36.9 million in mortgage loans that are subject to negative amortization, consisting of $25.8 million in multi-family loans, $5.3 million in commercial real estate loans and $5.8 million in single-family loans.  This compares to $40.2 million of negative amortization mortgage loans at June 30, 2012, consisting of $26.7 million in multi-family loans, $7.0 million in commercial real estate loans and $6.5 million in single-family loans.  During the first quarter of fiscal 2013, no loan interest income was added to the negative amortization loan balance, as compared to $13,000 of loan interest income in the comparable period of fiscal 2012.  Negative amortization involves a greater risk to the Bank because the loan principal balance may increase by a range of 110% to 115% of the original loan amount during the period of negative amortization and because the loan payment may increase beyond the means of the borrower when loan principal amortization is required.  Also, the Bank has originated interest-only ARM loans, which typically have a fixed interest rate for the first two to five years coupled with an interest only payment, followed by a periodic adjustable rate and a fully amortizing loan payment.  As of September 30, 2012 and June 30, 2012, the interest-only ARM loans were $206.5 million and $214.2 million, or 25.9% and 26.2% of loans held for investment, respectively.