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

Bank Casualties to Exceed 1,000

Recent mortgage-related company closings

February 23, 2009

By staff

A banking analyst projects more than 1,000 bank failures during the next five years, while the Federal Deposit Insurance Corporation expects the cost of failures to exceed $40 billion. The latest mortgage-related casualties include an Oregon bank and an FHA wholesaler.

The Oregon Department of Consumer and Business Services closed down Silver Falls Bank on Friday and appointed the FDIC receiver, a news release said.

The Silverton, Ore., bank had 35 full-time employees working from three branches.

Another Oregon institution, Citizens Bank, has assumed all of Silver Falls' $116 million in deposits as of Feb. 9 at par. Citizens also purchased $13 million of Silver Falls' $131 million in assets.

Included in the failed bank's assets were $16 million in residential mortgages as of Sept. 30. In addition, Silver Falls held $80 million in construction and land development loans, $7 million in multifamily loans and another $20 million in commercial mortgages.

"Silver Falls Bank had been experiencing critically low levels of capital, and ultimately, became insolvent," Oregon said in its own announcement. "The bank's problems resulted primarily from a heavy dependence on commercial construction loans, many of which were of poorer quality and were not performing or being repaid when the economy deteriorated."

A cease-and-desist order was issued against Silver Falls on Nov. 25 by the FDIC.

Silver Falls initiated a stock offering last month -- raising $525,000, Oregon said. Those funds are being held in escrow and will be returned to investors.

The FDIC expects the failure to cost the Deposit Insurance Fund $50 million.

Between 2008 and 2013, bank failures are expected to cost the FDIC in excess of $40 billion, FDIC Chief Operating Officer John F. Bovenzi testified this month before the House financial services committee.

Silver Falls, which was founded in 2000, was the 14th FDIC-insured bank, the 16th financial institution and the 27th mortgage-related company to fail this year, according to data tracked by

RBC Capital Markets analyst Gerard Cassidy forecast this month that more than 1,000 banks might fail during the next three to five years, Marketwatch reported. Last year, Cassidy projected just 200 to 300 bank failures -- but the environment has deteriorated since then.

Among the highest risk institutions from the 50 largest U.S. commercial banks are Sterling Financial of Spokane, Wash.; Colonial BancGroup in Montgomery, Ala.; and Puerto Rico-based Popular Inc. No. 4 is Huntington Bancshares.

The risk rankings were reportedly based on the "Texas Ratio," which measures credit problems as a percentage of available capital.

The growing list of bank casualties prompted the American Credit Union Mortgage Association to issue a statement this month highlighting the security of the nation's credit unions.

"Credit unions are among the few financial institutions that have mortgage money to lend to struggling consumers while at the same time operating for the benefit of their members," the trade group said. "For the most part, credit unions will not be included with the growing list of financial institutions paying large salary bonuses to executives or throwing large parties at the expense of the financial institution or the American taxpayers."

Perfect FHA -- which is the wholesale division of Perfect Mortgage -- indefinitely eliminated third-party originations, according to a Feb. 16 broker announcement posted on its Web site. The move was immediately effective, and the current pipeline of loans will not be funded.

Around 25 account executives reportedly worked at the company, which touted itself as an expert in manual underwriting on government-insured loans.

"Perfect FHA will continue to service our portfolio and will enforce all broker agreements," the announcement stated.

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News about wholesale lenders, correspondent lenders and wholesale mortgage lending programs. Alt-A, subprime and other niche loan programs. Lawsuits between wholesalers and brokers.

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