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

Friday Bloody Friday

3 banks, 2 corporate credit unions and 1 wholesaler close

March 23, 2009

By staff

Banking regulators seized five financial institutions on Friday, while one wholesaler has reportedly stopped serving mortgage brokers. The frenetic pace of failures this so far this year suggests 2009 might see mortgage-related casualties rise to the highest level in at least a decade.

First to go Friday was FirstCity Bank in Stockbridge, Ga., which was closed by the Georgia Department of Banking and Finance. An order issued by the Superior Court of Henry County appointed the Federal Deposit Insurance Corporation as receiver.

The FDIC could not find another institution to take over FirstCity, so the bank was liquidated and depositors will be mailed checks from the FDIC today. FirstCity had $297 million in assets as of March 18 -- including $63 million in residential loans, $20 million in commercial mortgages and $96 million in construction-and-land-development loans. Of $278 million in deposits, less than $1 million was uninsured.

The failure of FirstCity, which had 30 employees, is expected to cost the Deposit Insurance Fund $100 million. The bank had reached an agreement with the Federal Reserve Bank last month to strengthen oversight of its management, conserve capital and improve its capital position.

Next was Colorado National Bank in Colorado Springs, which was closed by the Office of the Comptroller of the Currency. The FDIC was appointed receiver, and Herring Bank in Amarillo, Texas, assumed all of the failed institutions $83 million in deposits as of Dec. 31, 2008, for a discount payment of 1.27 percent.

Herring also acquired $117 million of Colorado National's $124 million in assets at a $4 million discount. The failed banks assets included $8 million in residential mortgages, $28 million in commercial mortgages and $21 million in construction-and-land-development-assets. The FDIC consented to an 80/20 loss-sharing agreement on $62 million in assets.

"The bank had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," the OCC stated. "The OCC also found that the bank's unsafe and unsound practices weakened the bank's condition and seriously prejudiced the interests of the bank's depositors and the deposit insurance fund."

The failure of the 24-employee institution is projected to cost the FDIC $9 million.

The OCC cited the similar concerns in its shutdown of Teambank, N.A., in Paola, Kan., and noted that "there is no reasonable prospect that the bank will become adequately capitalized." Great Southern Bank in Springfield, Mo., agreed with the bank's receiver, the FDIC, to assume $474 million of Teambank's $493 million in deposits as of Dec. 31 for a 1 percent premium.

In addition, Great Southern acquired $657 million of Teambank's $670 million in assets at a $100 million discount. Teambank held $65 million in home mortgages, $123 in commercial mortgages and $189 million in construction-and-land-development loans The FDIC, which agreed to an 80/20 loss sharing on $450 million in assets, expects to lose $98 million in the failure of Teambank -- which employed 219 people.

So far this year, 20 FDIC-insured institutions have failed.

Also failing on Friday were two corporate credit unions.

The National Credit Union Administration Board issued a statement late Friday indicating that U.S. Central Federal Credit Union in Lenexa, Kan., and Western Corporate Federal Credit Union in San Dimas, Calif., were both placed into conservatorship. U.S. Central has $34 billion in assets and 26 retail credit union members. WesCorp has $23 billion in assets and around 1,100 retail credit union members.

The two institutions provided banking services and products to the retail credit unions that owned them. Neither U.S. Central nor WesCorp dealt with consumers directly. Both firms will continue to operate while in conservatorship.

A detailed analysis and stress test performed by the NCUA in late January on asset-backed securities held by all corporate credit unions found an unacceptably high concentration of risk at U.S. Central and WesCorp. Since then, further deterioration has occurred. The NCUA said its analysis determined that the two corporate credit unions needed to boost their loss reserves to $5.9 billion from $4.7 billion.

The failure of the two institutions brings to four the number of credit unions to fail so far in 2009.

Rancho Cucamonga, Calif.-based South Pacific Financial Corp. has shut down its wholesale channel, which closed around $20 million a month, according to the Mortgage Lender Implode-O-Meter. On its Web site, the 27-year-old company says it "is approved for FHA Direct Endorsement and VA Automatic Underwriting, as well as being an approved Seller/Servicer for Fannie Mae and Freddie Mac residential 1 - 4 unit loans."

Including South Pacific, has tracked the demise of 46 mortgage-related firms this year. The industry is on pace to exceed the 160 failures recorded for 2007 -- the worst year based on the oldest available data from dating back to 1998.

Thornburg Mortgage Inc. warned in a filing Friday with the Securities and Exchange Commission that it may file Chapter 11 bankruptcy and has hired Kirkland & Ellis LLP as its lead restructuring counsel. The Santa Fe, N.M.-based jumbo lender first halted originations in August 2007 and has been warning about its ongoing viability ever since.

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