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The Mortgage Graveyard
Failed, closed and a c q u i r e d mortgage-related entities.



Huge Losses From Friday's Failures

Recent closings of mortgage-related operations

Feb. 1, 2010

By MortgageDaily.com staff


Six banks that failed Friday are expected to cost the nation's insurance fund for bank deposits more than $2.3 billion. In other Mortgage Graveyard activity, the head of a branch operation is calling it quits for his company and warns that the same fate faces similar firms, while two government lenders that recently faced government actions have halted new business.

The bank seizures started with Carrollton, Ga.-based First National Bank of Georgia, which was closed by the Office of the Comptroller of the Currency after it found that First National "had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," an OCC statement said. The OCC -- which issued a prompt corrective action against the bank in December and executed a formal agreement earlier in the year -- added that it was unlikely "the bank will become adequately capitalized without federal assistance."

As is done with all federally insured banks when they fail, the Federal Deposit Insurance Corporation was appointed receiver of 63-year-old First National, which had $758 million in total deposits as of Sept. 30, 2009, and total assets of $833 million -- including $174 million in residential loans, $185 million in commercial mortgages and $142 million in construction-and-land-development loans. Cross-town rival Community & Southern Bank assumed all of the deposits for a 1.25 percent premium and acquired all the assets -- with the FDIC sharing in losses on $607 million of the assets. The FDIC expects to lose $260 million on the failure of the 206-employee institution.

Next to go was 86-year-old Florida Community Bank, which was closed by the Florida Office of Financial Regulation. The Immokalee, Fla.-based company had $796 million in deposits as of Sept. 30, while assets stood around $876 million -- including $55 million in home loans, $129 million in commercial real estate loans and $305 million in construction-and-land-development loans. Premier American Bank, N.A., agreed to assume all of the 158-employee institution's deposits for an 0.4 percent premium and acquire $499 million of the assets with the FDIC sharing in losses on $305 million of the assets and projecting its losses at $353 million.

The OCC noted in a statement that a shelf charter was used by Premier to acquire two failed banks, including Florida Community. The first preliminary approval was granted on Oct. 23 for Premier parent Bond Street Bank, National Association. The regulator described a shelf charter as a mechanism that enables investors to obtain preliminary approval for a national bank charter prior to acquiring a failed bank -- expanding the pool of potential bidders for troubled institutions. Premier's was the first approved by the OCC.

No. 3 Friday was Marshall Bank, N.A., which was seized by the OCC. The regulator noted that "the bank incurred losses that depleted its capital, the bank is critically undercapitalized and there is no reasonable prospect that the bank will become adequately capitalized without federal assistance." The OCC issued a cease-and-desist order and a $350,000 civil money penalty against Marshall on Nov. 9, while it issued a prompt corrective action in September and civil money penalties against several employees and executives throughout 2009.

Hallock, Minn.-based Marshall, established in 1943, had just $55 million in deposits, $60 million in assets and 14 employees as of Sept. 30. United Valley Bank paid a 7.35 percent premium to assume the deposits, and it also acquired all of the assets -- including $2 million in residential mortgages, $6 million in commercial mortgages and $2 million in development-and-construction loans. Associated losses to the Deposit Insurance Fund are estimated at $4 million.

Friday's fourth failure was 393-employee Community Bank and Trust in Cornelia, Ga. The 109-year-old firm was closed by the Georgia Department of Banking and Finance. SCBT, N.A., assumed all of Community's $1.11 billion in deposits as of Sept. 30 at par, while it acquired all of the $1.21 billion in assets including $293 million in residential loans, $237 million in commercial mortgages and $230 million in construction-and-land-development loans.

After sharing in losses on $828 million of Community's assets, the FDIC expects the failure to cost $828 million.

The fifth bank to collapse was 283-employee First Regional Bank, which was seized by the California Department of Financial Institutions. The state cited "inadequate liquidity and inadequate capital" in its decision to close the Los Angeles-based bank, which had $1.87 billion in deposits as of Sept. 30 and $2.18 billion in assets -- including $75 million in home loans, $987 million in commercial real estate assets and $690 million in construction-and-land-development holdings.

First-Citizens Bank & Trust Co. won its bid to acquire $2.17 billion of the assets and assume all of the 30-year-old institution's deposits at par. After sharing in losses on $2 billion of First Regional's assets, the FDIC -- which issued a cease-and-desist order against First Regional in February 2009 -- has pegged the cost to the Deposit Insurance Fund at $826 million.

Friday's final failure was American Marine Bank, which was closed by the Washington Department of Financial Institutions. The state said the failed institution, which was established in 1948, had "inadequate capital and severe loan losses." The FDIC, which expects to lose $59 on the failure, issued a cease-and-desist order against American Marine in November.

Columbia State Bank assumed all of the Bainbridge Island, Wash.-based bank's $309 million in deposits as of Sept. 30 for a 1 percent premium and acquired all of its $373 million in assets -- including $110 million in one- to four-unit residential mortgages, $62 million in commercial mortgages and $61 million in construction-and-land-development loans.

American Marine, which had 120 employees, was the 15th FDIC-insured institution to fail in 2010. If January is any indicator, around 180 banks will fail this year.

A Jan. 26 message from Apex Lending Inc. President Steve Hays to employees indicated that the 11-year-old firm was closing, according to a copy of the letter published by the Mortgage Lender Implode-0-Meter. The last day for originators of the Largo, Fla.-based company to take new applications was Friday, while all loans must be closed by Feb. 26.

Apex says it is licensed in 22 states. The company's model is based on a 100 percent commission for all "front and back" fees after corporate and branch expenses.

"Apex Lending's loan volume has been dramatically reduced and even with drastic cost-cutting measures, we have continued to lose money on a regular basis," Hays stated. "With everything that is going on in the industry, I feel that similar loan models like Apex Lending will be phased out over time."

Equitable Trust Mortgage Corp. was suspended by the Federal Housing Administration on Dec. 12 for allegedly failing to disclose yield spread premiums. FHA claimed that the Baltimore broker overcharged 37 borrowers.

photo of Steve Hays
Apex photo of Steve Hays

The suspension apparently left Equitable in a position where it couldn't continue to operate.

In a Jan. 15 e-mail posted by the Implode-0-Meter, Equitable President Richard Sapp told employees to execute a "Separation notice from employment." He explained that the company's cash had been frozen, though BB&T released some funds for December payroll. But Sapp did note that a reinstatement of its warehouse line with at least one bank was expected to occur the following week.

"At that time, we will be able to start closing loans, Sapp said. "Should you have some future interest in Equitable, we will consider re-hiring once we are able to conduct 'business as usual.'"

Edison, N.J.-based Security Atlantic Mortgage Co. faced a subpoena by U.S. Department of Housing and Urban Development Inspector General Kenneth M. Donohue over an alarming number of claims on loans originated by "a number of poor performing companies." The action was among 15 announced by HUD on Jan. 12 and was followed with a "business-as-usual" statement by Security Atlantic highlighting how the subpoena was no indication of its ability to close FHA loans.

But by Jan 25, Security Atlantic halted operations, according to a copy of a company announcement published the Implode-0-Meter. The 17-year-old firm called HUD's press conference "unorthodox" and said that underserved neighborhoods, where it has closed more than 17,000 loans, will suffer the consequences.

Security Atlantic said it was in the process of transferring all of its files to Real Estate Mortgage Network, which has opened an additional operations center in Edison, N.J., to handle the loans. It will, however, keep loans in states where Real Estate Mortgage Network is not licensed.

MortgageDaily.com has tracked the closing of 20 mortgage-related operations so far during 2010.

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