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2 Bank Subsidiaries of Irwin Fail Friday

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Two bank subsidiaries of Irwin Financial Corp. failed Friday. Irwin has been paring its mortgage holdings for more than four years. Some of the firms that acquired operations from Irwin along the way have themselves failed.

Irwin Union Bank, FSB, was closed Friday by the Office of Thrift Supervision and handed over to the Federal Deposit Insurance Corporation, a press release said.

The Louisville, Ky.-based bank “was in an unsafe and unsound condition to conduct business because of its deteriorating asset quality, weak earnings and inability to develop an acceptable operating plan,” the OTS said. Irwin had warned in a Securities and Exchange Commission filing last week that it didn’t expect to be able to comply with an OTS cease-and-desist order and had consented to the appointment of a receiver.

The failed institution was established in 2000 and had 103 employees as of June 30. Deposits were $463 million as of the end of June, and total assets of $518 million included $107 million in residential loans, $255 million in commercial mortgages and $34 million in construction-and-land-development loans.

In addition, Irwin Union Bank and Trust Co. in Columbus, Ind., was seized by the Indiana Department of Financial Institutions, and the FDIC was appointed receiver.

The 81-year-old Indiana institution, which employed 482 people as of June 30, “was operating in an unsafe and unsound manner, and its failing liquidity position left the bank in imminent danger of insolvency,” the state said. Total deposits as of June 30 were $2.254 billion, while total assets of $2.839 billion included $0.481 billion in home loans, $1.060 billion in commercial mortgages and $0.337 billion in construction-and-land-development assets.

Both institutions were subsidiaries of Irwin Financial Corp., which is also based in Columbus, Ind. All deposits of both banks were assumed by Hamilton, Ohio-based First Financial Bank, N.A., for a 1 percent premium. First Financial also acquired all of the banks’ assets, with the FDIC sharing in losses on $2.5 billion of the assets.

Irwin Financial began shedding mortgage operations in 2005 — well before the mortgage market meltdown was underway. In March 2005, it announced plans to sell a portion of its retail operations, and all of its net branch and credit union lending operations. Some of the net branches were sold to American Home Mortgage Corp. — which itself failed in 2007.

In 2006, Irwin Financial sold its conforming mortgage business to Freedom Mortgage Corp. — citing “changes in our strategies.” Shortly after the sale, it announced an agreement to sell its conforming, conventional mortgage servicing portfolio for about $261 million.

New Century Financial Corp. — which also failed in 2007 — acquired Irwin Mortgage Corp’s servicing operations in early 2007.

As the secondary market began to collapse in the second-quarter 2007, Irwin warned that it expected quarterly losses from its home-equity operations to rise to $10 million. The warning was followed by a servicer rating downgrade at Irwin Home Equity Corp. in May 2007. Expected quarterly losses rose to $20 million by the end of that year.

By July 2008, Irwin announced plans to unload $1.0 billion in HELs, and the following month it reported a $107 million second-quarter 2007 loss. Another servicer rating downgrade followed two months later.

As the bleeding intensified, Irwin was forced to enter a written agreement with the Federal Reserve Bank of Chicago last Fall to improve capital and liquidity and strengthen board oversight of management.

Irwin sold its platform assets and mortgage servicing rights on securitized home-equity loans to Green Tree Servicing LLC six months ago, enabling it to remove $690 million in HEL assets from its balance sheet. In July, it sold a $190 million commercial loan portfolio to First Financial Bank, National Association.

The estimated cost to the FDIC’s Deposit Insurance Fund for Friday’s failures is $850 million.

The failure of the two institutions brought to 94 the number of FDIC-insured banks to fail so far during 2009. MortgageDaily.com has tracked 155 mortgage-related operations that closed this year.

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