Newport was again represented before one of the most powerful financial institutions in the nation during a meeting of the Thrift Institutions Advisory Council in Washington DC during mid December.

Only a dozen bankers in the US serve on the council and among them, speaking for local bankers, was Richard Harwood, CEO and president of Newport Federal Bank, on Dec. 17th and 18th at the US Federal Reserve before the board of governors.

During a two-day meeting preparing for a question and answer session, Harwood presented answers concerning current financial market conditions, loan market, forecast for loan write-downs, lending, and credit.

Harwood was joined by Bill Donius, director of Pulaski Financial Corp, St. Louis, Missouri. They presented the council's answer, in part, as follows:

"The Council noted that loan volumes continued to decline, as does the quality of the credits. The members agreed that 2010 is likely to be worse than 2009, although variations based on geography are important, with some areas of the country holding up better than others.

"The Council believes that continued unemployment is now the driver of many of the problems observed. Until employment improves, the residential housing market will remain a problem. The Council did note that the lower price-point end of the housing market was showing a pulse."

In an interview with the Plain Talk, Harwood commented on the local economy and banking. "We did not see the downturn as quickly here (Cocke County). We are experiencing it now. Foreclosures and problem loans have increased."

In past years mortgage problems were generally seen among those who wanted to walk away from their loans or who were involved in divorces, he said. " Now we are seeing good customers who have lost jobs struggling to make payments. We are not accustomed to this."

Even though Newport Federal had to write down and make provisions for loan losses last year it still finished the year with a profit. This has not been true of larger regional and mega banks.

There is no slow down or turn around in foreclosures in the local market, he said. "By mid to late year the worst will have passed."

Credit availability was a big topic in Washington. "We are not getting the requests. We are ready to loan and have the money to lend but we can't drag them to the door," said Harwood.

It is peculiar, given the current need for more credit that loan conditions have been more restrictive, he said. "Washington says to lend money. Mortgage brokers and non-bank lending has dried up."

Harwood said that council members and local bankers feel that there are more restrictions to lending through federal bank regulators, and there are many organizations that monitor bank lending.

The House Committee on Financial Services chairman is casting light on this problem. Congressman Barney Frank, who in October sent a letter to Federal Reserve Chair Ben Bernanke, and other key government financial leaders stated: "It is now recognized that the vast majority of problem sub-prime loans were originated by non-bank lenders. Yet, it is the already highly regulated traditional depository banks that are feeling the greatest regulatory pressure as a result of the current economic crisis. In particular, one of the biggest challenges faced by community banks (but shared by all banks) is how to respond to the calls from Congress to increase lending to stimulate the economy and to work with troubled borrowers on foreclosure mitigation, while dealing with the increasingly stringent directives from regulators that can preclude banks from doing just that."

Harwood noted that one of the advantages local bankers have over metropolitan areas is, "We know our customers and can work with them to prevent foreclosures." Banks can reduce monthly payments and stretch out payments to help homeowners stay in their homes. Refinancing and combining debts can help, too.

"We (local bankers) encourage customers to come in before they are so delinquent nothing can be done," he said. As Harwood told Council members, "It is difficult to look in the eyes of financially struggling customers and tell them the options that confront them, including foreclosures."

While the public has shown some outrage that those banks borrowing billions of federal dollars are turning around to pay out billions in bonuses and salaries, Harwood explains this is not the case with community banks. "We are not fat cat bankers."

"We are coming out of this. There is some more pain to go." Harwood said that the community banks are in stronger position to help the communities because the banks are not struggling with bad commercial loans.

During a lunch period, Harwood said he was seated at the board of governors conference table when Chairman Bernanke walked up and sat down next to him. Bernanke is regarded by many as the second most powerful man in Washington, if not the world.

"He is down to earth. We understand him and the Federal Reserve is working to become more open, transparent," said Harwood, who was raised in Wadsboro, North Carolina. Bernanke grew up in Greer, South Carolina, about an hour away.

That Friday, when Harwood was getting ready to leave D.C., his flight barely managed to get away with snow falling as the monster winter storm arrived in the southeast.

Bankers and homeowners are anxious to see the financial storm pass later this year.