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

2 Banks and 1 CU Fail, Net Branch Implodes

Recent mortgage-related closings and failures

March 1, 2010 (revised 4:40 p.m.)

By staff

A bank that had nearly $300 million more in assets than in deposits was seized by state regulators last week as a result of heavy losses in collateralized-debt obligations. Also last week, a national net branch company that recently ranked as a top "non-imploded" lender ended operations.

The Mortgage Bankers Association expressed concern in a letter to the Federal Deposit Insurance Corporation about the elimination of off-balance sheet treatment of mortgage-backed securities and wants the agency to withdraw its Advance Notice of Proposed Rulemaking.

The trade group said it is concerned because of a potential three-month delay in the recovery of MBS investor money if a bank fails and falls into FDIC receivership. Some key features of the proposal could impose additional transaction costs, generate regulatory uncertainty and fracture and restrict the securitization framework. Hundred of billions of dollars in MBS would be impacted.

"MBA believes a full recovery of the real estate finance system hinges on the return of private investors to the capital market," the letter said. "MBA is concerned that the FDIC's proposal, which would unilaterally impose arbitrary restrictions on some securitization market participants, has a greater potential to impede a full market recovery than a comprehensive and coordinated financial regulatory reform initiative currently being undertaken by Congress and other relevant regulators."

The Nevada Department of Business and Industry, Financial Institutions Division, Friday seized Carson River Community Bank and handed it over to the FDIC as receiver.

The Carson City, Nev., bank was founded less than four years earlier and employed just 11 people. Assets totaled $51 million as of Dec. 31, 2009 -- including $7 million in home loans, $19 million in commercial mortgages and $9 million in construction and development loans. In April 2009, the FDIC issued a cease-and-desist order against Carson River.

Heritage Bank of Nevada acquired $38 million of the failed bank's assets and assumed all of its $50 million in deposits as of Dec. 31 at par. A $29 million loss-sharing agreement has the FDIC's projected losses from Carson River's failure at just $8 million.

A little further northwest, in Tacoma, Wash., the Washington Department of Financial Institutions closed down Rainier Pacific Bank because of inadequate capital and severe loan losses. The 191-employee institution was established in 1933.

"Rainier Pacific Bank's capital has been depleted by significant securities write-downs and loan losses," Brad Williamson, director of the department's division of banks, said in the statement. "Rainier's largest losses resulted from write-downs on collateralized-debt obligations that lost tremendous value as the financial markets became illiquid and underlying asset values declined. Construction loan losses further eroded the bank's capital position."

Umpqua Bank acquired all of the failed institution's $446 million in deposits as of Dec. 31 for a 1.04 percent premium from the FDIC, which was appointed receiver. It also acquired around $670 million of Rainier Pacific's $718 million in total assets -- which included $81 million in residential loans, $377 million in commercial mortgages and $48 million in C&D loans.

The FDIC -- which hit the bank with a cease-and-desist order in September 2009 and a $2,875 civil money penalty a month earlier -- agreed to share in losses on $578 million of the assets, bringing its estimates losses to $95 million as a result of Rainier Pacific's failure -- the 22nd FDIC-insured failure this year.

Friendship Community Federal Credit Union was liquidated on Thursday by the National Credit Union Administration. A declining financial condition was blamed for the failure of the Clarksdale, Miss.-based institution. Friendship had 685 members and less than $1 million in assets.

Louisiana's Shreveport Federal Credit Union won its bid to acquire the failed credit union.

(read statement from Assurity about inaccuracies in this story)

In Englewood, Colo., Assurity Financial Services LLC notified its mortgage brokers that it would wind down operations last week, according to a copy of a Feb. 22 mortgage broker bulletin from Chief Executive Officer Calvin B. Hamler that was published by the Mortgage Lender Implode-0-Meter -- which withdrew its "A" ranking of Assurity as a "Top Non-Imploded" retail and wholesale lender. Assurity reportedly originated around $0.6 billion annually.

The net branch business blamed "a rapid, precipitous drop in production" and an inability to secure long-term financing for loan production and said the move came only after all other options had been exhausted. Most of Assurity's reported 300 employees were expected to be laid off, though a small staff would stay on to wind down the business.

Assurity's Web site touts Hamler's "extensive Wall Street background" and prior directorship on the Colorado Mortgage Lenders Association's board of directors. Partner Vanessa Giacoman is a graduate from the Harvard School of Business.
The eight-year-old company said it was approved as a Full Eagle Direct Endorsement FHA lender and approved by the U.S. Department of Veterans Affairs and Fannie Mae. It utilized "the most sophisticated forms of secondary market delivery," operated in all 50 states (read retraction -- only licensed in 25 states) and issued a press release less than four months ago touting how its hirings were outpacing the industry's.

But in January, it was subpoenaed over the poor performance of its originations. A year prior, Assurity faced a $250,000 suspended fine from the Federal Trade Commission (
read retraction -- no FTC actions) over allegedly sending mailers that appeared to be from the U.S. government offering hundreds or thousands of dollars in refunds, while the company was accused the previous August by the State of Washington of the same. Three months before that, a branch of Assurity lost FHA approval, while another branch lost FHA approval in 2006.

Bankrupt Brasota Mortgage Company Inc., which has already seen $85 million in recoveries, was expected to be liquidated Saturday, the Bradenton Herald reported. Founder and owner William J. Morrison died in October 2004 -- exposing the alleged scam.

Bradenton, Fla.-based Brasota, which filed for bankruptcy in February 2005, was described as an investment Ponzi scheme with nearly 1,800 investors who invested $139 million.

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