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

3 Fail, Big Commercial Lender on the Rocks

1 credit union, 2 banks seized

April 24, 2009

By staff

Three federally insured financial institutions failed today, and the third largest commercial mortgage servicer is on the verge of failing.

Control of Eastern Financial Florida Credit Union's operations was seized today by the Florida Office of Financial Regulations, a news release said.

A decline in the financial condition of the state-chartered institution was cited for the move.

The National Credit Union Administration was named conservator of the Miramar, Fla.-based organization.

Officials from Space Coast Credit Union of Melbourne, Fla., were temporarily placed in charge of Eastern, which was originally chartered in 1937.

"The decision to conserve a credit union enables the institution to continue normal operations with expert management in place," the NCUA said.

Eastern has 200,000 members and $1.6 billion in assets. It serves several Florida counties.

Deposits at the failed credit union are insured up to $250,000 by the National Credit Union Share Insurance Fund.

Eastern was the fifth credit union to fail during 2008.

Another financial institution that was seized today was American Southern Bank in Kennesaw, Ga.

The Georgia Department of Banking and Finance took control of the bank and named the Federal Deposit Insurance receiver, a statement said.

American Southern, founded in 2005, had just one branch and 14 employees.

Bank of North Georgia has agreed to assume all of the failed bank's $104 million in deposits as of March 30 for an 0.003 percent premium. The FDIC said $49 million in brokered deposits are excluded from the deal.

Bank of North Georgia also agreed to acquire $31 million of American Southern's $112 million in assets. At the end of last year, American Southern held $6 million in residential loans, $24 million in commercial mortgages and $28 million in construction and land development loans.

The FDIC estimates the cost of the failure will be $42 million.

American Southern was the 26th FDIC-insured institution to fail this year.

The FDIC was also named receiver of No. 27 Farmington Hills, Mich.-based Michigan Heritage Bank -- which was closed today by the Michigan Office of Financial and Insurance Regulation after the Ingham County Circuit Court granted a petition.

The failed institution, opened in 1997, operated three branches and employed 31 people.

Level One Bank acquired the all of Michigan Heritage's $152 million in deposits as of Dec. 31, 2008, for a 1.16 percent premium. Brokered deposits of $50 million are excluded from the transaction.

"This is a good deal for customers--no depositor will lose a penny," the Michigan regulator said in a statement.

On April 1, the Federal Reserve Board issued Consent Prompt Corrective Action Directives against Michigan Heritage, while the company entered a written agreement with the Federal Reserve and the Michigan regulator in December.

Level One also acquired $46 million of Michigan Heritage's $185 million in assets. At the end of last year, assets included $19 million in residential loans, $1 million in multifamily loans and $17 million in commercial mortgages. Construction and land development holdings were $20 million.

Losses to the Deposit Insurance Fund because of Michigan Heritage's collapse are estimated at $71 million.

So far this year, has tracked the closing or failure of 59 mortgage-related firms.

And that list could increase by one based on warnings from Capmark Financial Group Inc.

The Horsham, Penn.-based commercial mortgage lender warned in a filing with the Securities and Exchange Commission today that it is out of compliance with a senior credit facility and bridge loan agreement. It has negotiated a waiver until May 8 with most of the lenders.

But if Capmark doesn't get another extension beyond May 8, the default could trigger a declaration that the loans are immediately due and payable. Unless it has a successful recapitalization, asset sale or restructuring, it would be forced to reorganize under Chapter 11 of the United States Bankruptcy Code.

"Due to these conditions and events, substantial doubt exists about Capmark's ability to continue as a going concern," the filing said. "Capmark's management believes that access to capital markets is extremely limited in the current economic environment and it is unlikely that it will be able to access new capital if it is unable to complete the restructuring of the senior credit facility and bridge loan agreement."

Capmark was the third biggest commercial mortgage servicer at the end of last year, with a servicing portfolio of 34,252 loans for $260.9 billion, according to the Mortgage Bankers Association. In addition, the trade group ranked Capmark as the seventh biggest commercial mortgage lender in the country during 2009, with commercial production of $10.1 billion.

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