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

6 Financial Institutions Seized

3 banks, 3 credit unions closed

Oct. 5, 2009

By staff

Six U.S. financial institutions were recently seized by regulators.

The Michigan Office of Financial and Insurance Regulation announced Friday the seizure of Warren Bank. The 11-year-old Warren, Mich., institution had $538 million in assets and $501 million in deposits as of July 31. It faced a Federal Reserve prompt corrective action directive in July.

The Huntington National Bank acquired all of Warren's non-brokered deposits for an 0.27 percent premium from the Federal Deposit Insurance Corporation, which was named receiver. But Huntington only acquired $83 million of the failed bank's assets.

The FDIC, which is named receiver of all federally insured banks that fail, expects that Warren's collapse will cost $275 million.

The next to go was 24-employee Jennings State Bank. The Minnesota Department of Commerce closed the Spring Grove, Minn., institution, and Central Bank assumed all of Jennings' $56 million in deposits as of July 31. Central also acquired all of the failed institution's $56 million in assets, including $9 million in residential loans, $11 million in commercial loans and less than $1 million in construction-and-land-development loans.

The FDIC, which issued a $25,000 civil money penalty against Jennings in June, agreed to a loss-sharing arrangement on around $38 million in assets. The failure of the 119-year-old institution is expected to deplete the Deposit Insurance Fund by $12 million.

No. 3 on Friday, Southern Colorado National Bank, was closed by Office of the Comptroller of the Currency -- which issued a cease-and-desist order against the bank earlier this year. The 7-year-old company had just 21 employees as of the end of June.

"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 incurred losses that depleted its capital, the bank is critically undercapitalized and there is no reasonable prospect that the bank will become adequately capitalized without federal assistance."

Legacy Bank assumed all of the Pueblo, Colo., bank's $32 million in deposits as of Sept. 4 for a 1 percent premium. Legacy also acquired "essentially all" of Southern Colorado's $40 million in assets, including $7 million in home mortgages, $9 million in commercial mortgages and $4 million in construction-and-land-development assets.

After sharing in losses on $26 million of the acquired assets, the FDIC expects to lose around $7 million on Southern Colorado's failure -- the 98th this year.

The recent high volume of bank failures has prompted the FDIC to propose that insured institutions prepay three years of estimated quarterly risk-based assessments during the fourth quarter -- an amount estimated at $45 billion. In addition, the FDIC Board voted to increase assessment rates by 3 basis points effective Jan. 1, 2011, and to
extend the restoration period from seven to eight years.

"The decision today is really about how and when the industry fulfills its obligation to the insurance fund," the FDIC said in a statement last week. "Prepayment of assessments will allow ... the capital impact of deposit insurance assessments to be felt gradually over time as the industry improves its own financial position."

The American Bankers Association threw its support behind the FDIC's proposal, noting, "The pre-paid assessments represent money that the FDIC expects to receive from banks anyway over the next several years, but having the cash on hand sooner rather than later provides more flexibility for dealing with any contingencies over the foreseeable future."

The ABA said banks will pay $17 billion in premiums this year, including a $5.6 billion special assessment that was paid in the second quarter.

Among three credit unions to be recently seized was Clearstar Financial Credit Union, which was closed by the Nevada Division of Financial Institutions on Sept. 25, the National Credit Union Administration announced. United Federal Credit Union assumed $141 million in deposits from 16,000 members and acquired $144 million in assets.

On Wednesday, the NCUA said it liquidated The Members' Own Federal Credit Union in Victorville, Calif., and sold its $85 million in assets to Alaska USA Federal Credit Union -- which also assumed deposits from the failed credit union's 11,000 members.

"Members' Own Federal Credit Union's declining financial condition led to its closure," the NCUA stated.

In El Paso, Texas, West Texas Credit Union was liquidated by the Texas Credit Union Department. The 45-year-old credit union's $78 million in assets were acquired by Security Service Federal Credit Union. In addition, Security Service agreed to assume the deposits of the failed institution's 25,000 members.

"The credit union was insolvent and has no prospects for restoring viable operations," the NCUA explained.

So far this year, 13 credit unions -- including two corporate credit unions -- have been seized. In all, has tracked the collapse or closing of 165 mortgage-related entities so far this year.

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