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

2 Failed, 2 Dying

Recent company failures, closures and warnings

April 20, 2009

By staff

The nation's bankers don't want to get stuck with the insurance tab for nonbanks considered too big to fail. Two companies raised doubt about their ability to continue in business, with one having been given less than three weeks by its bank regulator to find a white knight. But two other financial institutions ran out of time.

In an April 15 letter to U.S. Treasury Secretary Timothy Geithner, the American Bankers Association warned that making the Federal Deposit Insurance Corporation responsible for resolving the failure of nonbanks that are considered systemically significant would undermine public confidence in the federal bank insurer. Instead, the trade group is calling for a separate FDIC entity to oversee institutions like AIG that are considered too big to fail.

"The new agency would be similar to the Resolution Trust Corporation, which also used FDIC personnel extensively," the trade group's President and Chief Executive Officer Edward Yingling said in the letter.

BankUnited Financial Corp. disclosed in a Securities and Exchange Commission filing Friday that an increase in allowances for loan losses as well as writedowns on the value of its securities portfolio has pushed shareholder equity to a negative $13 million. The bank raised doubt about its ability to continue as a going concern.

On April 14, the Coral Gables, Fla.-based company entered into a Stipulation and Consent to Prompt Corrective Action Directive with the Office of Thrift Supervision.

The order "directs the bank to be recapitalized by a merger with or an acquisition by another financial institution or another entity, or through the sale of all or substantially all of the bank's assets and liabilities to another financial institution or another entity within twenty days pursuant to a written definitive agreement," the filing said, "which the bank is required to execute within fifteen days."

The National Credit Union Administration recently issued a frequently-asked-questions sheet on the March 20 failures of U.S. Central Federal Credit Union in Lenexa, Kan., and Western Corporate Federal Credit Union in San Dimas, Calif. The two institutions, which provide banking services and products to the retail credit unions that own them, are operating normally under the conservatorship of the NCUA -- though their boards and senior executives have been removed.

The regulator said the two institutions were seized to reduce systemic exposure, stabilize confidence in the two organizations and protect the member owners and the Share Insurance Fund. Their liquidity has been drained by high concentrations of residential mortgage-backed securities, and their future is still being determined.

Significant discrepancies were found between estimated credit losses by the two institutions, the NCUA and external vendors that conducted portfolio reviews, according to their regulator.

"In some cases, potentially misleading positive results were seen when only a small or select portion of the portfolio was segmented for the external review," the FAQ said.

Triad Guaranty Inc., which stopped issuing new mortgage insurance policies through subsidiary Triad Guaranty Insurance Corp. in June 2008, said last month that its auditors Ernst & Young LLP issued a statement about Triad's ability to continue as a going concern.

American Sterling Bank was shut down by the OTS on Friday, a news release said.

The OTS said an examination of American Sterling launched in June 2008 revealed "poor record-keeping, a critical lack of capital and liquidity issues." A cease-and-desist order was issued the following August, but "the deficiencies caused American Sterling to be in an unsafe and unsound condition, and unable to continue operations."

All of the Sugar Creek, Mo.'s, $172 million in deposits as of March 20 were acquired by Metcalf Bank from the FDIC -- which was named receiver.

Metcalf, based in Lee's Summit, Mo., is also acquiring $174 million of American Sterling's $181 million in assets as of March 20. At the end of 2008, assets included $72 million in residential loans, $15 million in commercial mortgages and $6 million in construction-and-land-development loans. The FDIC has agreed to a loss-sharing arrangement on $100 million in assets.

Employment at the failed institution, which was founded in 1907 as the Bank of Levasy, had fallen to 142 at the end of last year from 341 on Dec. 31, 2007.

In 2006, American Sterling acquired the wholesale and retail mortgage unit of Universal Savings Bank. The following year, it acquired mortgage production offices in San Diego and Minneapolis from WinStar Mortgage Partners Inc.

In all, the FDIC expects to lose $42 million on the closing of American Sterling -- the 24th federally insured bank to fail this year.

Also on Friday, No. 25 Great Basin Bank of Nevada was seized by The Nevada Financial Institutions Division, which said it also appointed the FDIC as receiver.

"Due to inadequate capital and mounting loan losses, it was necessary to close Great Basin," Financial Institutions Division George E. Burns said in the announcement.

Nevada State Bank agreed to assume all of Great Basin's $221 million in deposits as of Dec. 31. It also agreed to acquire $252 million of Great Basin's $271 million in assets, with the FDIC sharing in losses on $143 million of the assets. Losses to the Deposit Insurance Fund are estimated at $42 million.

Great Basin reported $13 million in residential loans as of Dec. 31. In addition, it had $46 million in commercial mortgages and $21 million in construction-and-land-development loans.

The failed bank, based in Elko, Nev., was founded in 1993. At the end of last year, it reported 102 employees.

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