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

Credit Unions Dominate Failures

Mortgage-related firms and operations to recently fail

Sept. 26, 2010

By Mortgage Daily staff

Bi-coastal bank failures last week are expected to cost more than $100 million. But the big news is three corporate credit unions that were seized and the government's plan to dispose of their assets.

Haven Trust Bank Florida was closed Friday by the Florida Office of Financial Regulation. As was the case with another bank failure Friday, the Federal Deposit Insurance Corp. was appointed receiver.

Haven Trust was based in Ponte Vedra Beach, Fla., and founded just four years ago. Only 17 people worked at the bank.

A cease-and-desist order was issued against Haven Trust in February by the FDIC, which expects its Deposit Insurance Fund to be depleted by $32 million as a result of the failure.

First Southern Bank stepped in to assume all of the failed institution's $134 million in deposits at par and acquire all of its $149 million in assets with the FDIC sharing in losses on $127 million of the assets. Home-loan holdings were $8 million, while commercial mortgages were $81 million and construction-and-development loans were $18 million.

Across the country, to the North, the Washington Department of Financial Institutions closed North County Bank. "Severe loan losses" were cited by the department.

The FDIC hit the bank with a prompt corrective action in June and issued a cease-and-desist order a year ago.

"North County Bank's capital has been eroded by large loan losses associated with land development and construction lending," the department's Director of Division of Banks Brad Williamson explained in a news release. "The bank's management was not able to raise capital to offset the significant loan losses. The bank is critically undercapitalized which requires today's closure."

The Arlington, Wash.-based bank had $276 million in deposits, all of which were assumed by Whidbey Island Bank for a 2 percent premium. North County's assets were $289 million, including $57 million in residential loans, $77 million in commercial mortgages and $54 million in C&D loans. Whidbey Island also agreed to buy the assets, though the FDIC agreed to a whopping $222 million loss-sharing arrangement, bringing estimated losses to $73 million.

North County was 11 years old, had 45 employees at the time of its demise and was the 127th FDIC-insured bank failure this year.

Also Friday, the National Credit Union Administration assumed control of three corporate credit unions: Members United Corporate Federal Credit Union
, Southwest Corporate Federal Credit Union and Constitution Corporate Federal Credit Union. The institutions were placed into conservatorship, which will allow the NCUA to replace the board and management of the credit unions while they continue to operate.

The NCUA called the three failed credit unions "undercapitalized" and said they weren't viable.

Corporate credit unions don't deal with consumers. Instead, they provide correspondent services to retail credit unions.

Last week's corporate credit union failures, along with last year's seizures of U.S.
Central Corporate Federal Credit Union and Western Corporate Federal Credit Union, has left the NCUA with a sizeable asset portfolio and scrambling to prop up the sector. So the regulator unveiled a plan to isolate and resolve the impaired assets in the corporate credit union system and strengthen regulations.

Among steps being taken are a repackaging of legacy assets into new securities guaranteed by the NCUA. Another plan has new securities being issued on the open market. The regulator is also looking at setting up "bridge banks" to hold assets that still have value.

"The steps NCUA has taken today represent a comprehensive solution to the problems
afflicting the corporate credit union system," NCUA Chairman Debbie Matz said in the statement. "This plan also provides an orderly transition to a new regulatory regime for corporates. In addition, we are affording local credit unions greater choice in selection of their liquidity and back office provider."

Including retail and corporate credit unions that may or may not have been federally insured, Mortgage Daily has tracked the demise of 18 credit unions this year.

Accounting for all mortgage-related companies and operations to close or fail this year, this year's Mortgage Graveyard count has climbed to 159.

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