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

2 Casualties Rise From Dead

Westsound fails, Chase to continue warehouse lending

May 11, 2009

By staff

The mortgage casualty list increased by at least one last week. But the bad news was more than offset by the resurrection of two prior casualties.

Bank regulators kept up their weekly ritual of seizing failed financial institutions, with the Washington Department of Financial Institutions Friday closing Westsound Bank, a press release said. The Federal Deposit Insurance Corporation was named receiver of the Bremerton bank.

The state cited "severe asset problems, significant losses and inadequate capital" in its decision to seize Westsound.

"It is regrettable to have to take such actions, but DFI did so to ensure the soundness and stability of banking in Washington State," Brad Williamson, director of the state regulator, said in the statement. "This unfortunate event is the result of very poor lending practices during the past several years."

Williamson noted that the current management team made a diligent attempt to work through problems with the bank's loan portfolio. But souring local real estate markets and the economic downturn proved too much to overcome.

Google Map image of Westsouth

Westsound was founded in March 1999 and employed 93 people as of Dec. 31, 2008. It had $335 million in assets as of March 31, including $34 million in residential mortgages, $74 million in commercial mortgages and $137 million in construction-and-land-development loans as of Dec. 31, 2008.

Kitsap Bank negotiated the assumption of $305 million in Westsound deposits as of March 31 from the FDIC, though $9 million in brokered deposits were excluded from the deal. But Kitsap only acquired $49 million of Westsound's assets.

Westsound was the 33rd FDIC-insured institution to fail this year and the 69th mortgage-related failure tracked by The FDIC expects the closing to cost $108 million.

JPMorgan Chase & Co. has changed its mind about closing its warehouse lending division.

The company said in February that the unit didn't fit its long-term strategy and it would be closed. Only eight active clients were utilizing the operation at the time.

But on Friday, a Chase spokeswoman told in a statement that the New York-based institution has decided it will continue to serve a select group of customers.

She indicated that the business will be moved from Chase's consumer bank unit to its commercial bank business line.

And Chase wasn't the only company to revive a dead horse.

Shearson Financial Network Inc., which discontinued all operations in March 2008, announced Thursday that it has successfully emerged from bankruptcy. The formerly growing "consolidator of independent mortgage brokerages" had been on a two-year acquisition binge prior to its demise last year. It was founded in 2006 and employs 39 people, data from Dun and Bradstreet Inc. indicate.

The San Francisco-based firm filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code on June 16, 2008.

Last week's announcement indicated that the U.S. Bankruptcy Court had confirmed Shearson's first amended joint plan of reorganization. The restructuring was accomplished in "a matter of months."

Shearson's former Web site isn't functioning and no additional information about possibly revived operations was available.

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