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Big Losses from Small Bank’s Failure

Mortgage News

The failure of a small bank in Illinois is expected to generate significant losses. Other recent mortgage-related casualties include the demise of a financial institution in Virginia and the liquidation of a former subprime mortgage lender.

On Friday, the Illinois Department of Financial and Professional Regulation – Division of Banking seized control of Covenant Bank and closed it down.

The Chicago bank had more than $58 million in total assets as of Dec. 31, 2012, including around $22 million in home loans and $18 million in commercial real estate loans. Its total deposits stood at approximately $54 million.

As is the case with any failure of a federally insured bank, the Federal Deposit Insurance Corp. was named receiver of Covenant Bank.

FDIC data indicate that Covenant Bank was established in 1977 and had around 25 employees.

In June 2011, it was slapped with an FDIC consent order over alleged unsafe or unsound banking practices and violations of law, rule or regulation.

After considering all bids, Liberty Bank and Trust Co. out of New Orleans was awarded the winning bid. Liberty Bank acquired all of the failed bank’s assets and assumed all of its deposits.

The FDIC pegged losses from Covenant Bank’s demise at $22 million — fairly sizable given its asset size.

Covenant Bank was the third FDIC-insured bank to fail so far during 2013.

Earlier this month, the National Credit Union Administration took control of NCP Community Development Federal Credit Union and placed it into conservatorship.

The Norfolk, Va., financial institution has $2 million in assets. It serves 709 members in a low-income community in the Hampton Roads area.

“The decision to conserve a credit union enables the institution to continue regular operations with expert management in place, correcting previous service and operational weaknesses,” the NCUA explained.

Fourteen-year-old NCP was the second credit union failure this year tracked by Mortgage Daily.

So far during 2013, Mortgage Daily has chronicled six mortgage-related businesses that have failed or closed.

A plan of liquidation was approved on Jan. 17 by shareholders of Accredited Mortgage Loan REIT Trust. The move was made to clarify that future distributions to shareholders should be treated as liquidating distributions for federal income tax purposes.

The announcement indicated that Accredited REIT has received additional payments from the liquidating trust and Consolidated Holdco estate in the Accredited Home Lenders Holding Co. bankruptcy.

Accredited Home Lenders shut down its retail operation, closed 10 wholesale centers and eliminated half of its staff in August 2007. A subsequent attempt to revive the San Diego-based company by Lone Star Funds — which sank $100 million into Accredited — was followed by an attempt by Lone Star to back out of the deal and a lawsuit by Accredited to force Lone Star to complete the investment.

But after all was said and done, the lack of a secondary market for nonconforming mortgages was too much to overcome. Accredited Home Lenders and four affiliates filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in May 2009.

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