Another issue is their reliance on home equity loans and lines of credit as a revenue generator. These typically are second mortgages and subordinate to the first one. If a homeowner is having financial difficulties, they will pay the primary note and ignore the equity loan. They know the holder of the secondary note will never foreclose because the proceeds will go to the first mortgage holder and the second mortgage holder may have incurred the costs of the foreclosure but not receive any money.

Another issue is their reliance on on non-deposit accounts and their failure to offer services for younger clientele who have a more mobile lifestyle and do not want to get saddled by a home, but have high incomes. Their core customer has a lot of grey hair and getting older. Once their homes are paid off, they won’t need another mortgage and the younger people in the world will be banking at places that offer more than three ATM transactions a month, mobile banking and full service accounts.

Had they not had that fortuitously timed IPO three years ago, Third Federal might be in trouble today. If they hadn’t gotten that two billion dollars from the IPO, what would their financials look like today? Their capital seems to be dropping and it’s probably not because they’re making lots and lots of new high-quality loans. Are they cranking out buggy whips hoping that what they did in the past will take them into the future while burning cash?

On another note, where it says ““The Association did not classify it as a sub-prime lending program based on the exclusion provided to community development loans in the Office of Thrift Supervision’s Expanded Guidance for Sub-prime Lending.” “, they were probably doing “Alt-A” loans. These are supposed loans to good clients who lack all the “proper” paperwork. Those haven’t worked out very well either, eh?