Bank bails itself out

The subhead of this  (1/1/11) Tribune article summarizes well:

$15 million Marquette Bank program offers subsidized home loans to buyers who purchase homes in subdivisions of client builders

You’re a bank.  You made some construction loans (or were they even land acquisition loans?) to residential builders who are now unable to repay. If you repossess the land you surely will have to recognize a loss; maybe your capital ratios will be endangered.  What do you do?

You lend money to buyers on favorable terms, which they use to buy houses in those subdivisions.   You hold the loans in your own portfolio, so they need not conform to recently-tightened underwriting standards. Win-win, at least for the bank and the borrowers.

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