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Failures Poised to Reach Highest Level in Decade

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With the failure of three federally insured banks on Friday, the number of mortgage-related closings so far during 2009 has already reached the total for all of last year. This year is on track to see the most company closings on record.

Florida’s Office of Financial Regulation issued a cease and desist order Friday against Taylor, Bean and Whitaker Mortgage Corp. requiring the Ocala, Fla.-based lender to stop originating loans through its 30 Florida offices. The order also requires that the company ensure prospective borrowers in its pipeline are not harmed.

The regulator indicated that Taylor Bean’s suspension was the result of its inability to fund existing applications and its suspension or termination last week by Freddie Mac, Ginnie Mae and the U.S. Department of Housing and Urban Development. Taylor Bean told its third-party customers Wednesday that it “must cease all originations operations effective immediately.”

Also on Friday, the Florida regulator shut down First State Bank.

The Sarasota bank was founded in 1988 and employed 136 people as of March 31. Its $441 million in assets as of the end of the first quarter included $42 million in one- to four-unit residential loans, $185 million in commercial mortgages and $60 million in construction-and-land-development loans.

“Unfortunately, deterioration in the real estate market caused significant loan losses which depleted First State Bank’s capital,” Linda Charity, acting commissioner of the Office of Financial Regulation, said in a news release. “Despite ongoing efforts to re-capitalize the bank, a viable plan was not achieved.”

Minnesota’s Stearns Bank, National Association, acquired all of First State’s $387 million in deposits from the Federal Deposit Insurance Corporation, which was appointed receiver. In addition, Stearns Bank acquired around $451 million of First State’s assets, with the FDIC sharing in losses on $364 million of the assets.

The FDIC expects the cost to clean up the mess left by the failure of First State will reach $116 million.

Stearns Bank also assumed $93 million in the deposits of Community National Bank of Sarasota County for an 0.25 percent premium from the FDIC. Community was closed Friday by the Office of the Comptroller of the Currency, which appointed the FDIC receiver.

“The OCC acted after finding that the bank had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices,” the OCC said. “The OCC also found that the bank incurred losses that depleted its capital, and there is no reasonable prospect that the bank will become adequately capitalized without federal assistance.”

The OCC issued a capital directive against the Venice, Fla., bank on June 3.

Stearns purchased $94 million of Community National’s $97 million in assets as of June 30, and the FDIC will share in losses on around $79 million of the acquired assets. The Deposit Insurance Fund is expected to be depleted by $24 million as a result of the failure.

The last to go on Friday was Community First Bank, which was seized by the Oregon Division of Finance & Corporate Securities.

“Community First Bank had been experiencing critically low levels of capital, and ultimately, became insolvent,” the state said in a press release. “The bank’s problems resulted primarily from a heavy dependence on residential construction loans, many of which were of poorer quality and were not performing or being repaid when the economy deteriorated.”

The Prineville, Ore., institution was founded in 1980. It entered a formal agreement with the Federal Reserve Bank of San Francisco and the Oregon regulator on April 15.

Idaho’s Home Federal Bank assumed all of Community First’s $182 million in deposits. It also acquired around $197 million of the failed bank’s $209 million in assets, with the FDIC retaining exposure on $155 million of the purchased assets.

The demise of Community First is expected to cost the FDIC $45 million.

Including all of Friday’s failure’s, 72 FDIC-insured banks have been shut down this year. Excluding Taylor Bean, which has yet to formally declare an end to its existence, MortgageDaily.com has tracked the closing of 123 mortgage-related operations.

During all of 2008, 123 closings were chronicled. At the current pace, 2009 is on track to exceed the 165 closings reported for 2007 — the highest year on record based on data going back to 1998.

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