Federal banking regulators are ordering changes after the preliminary phase of the investigation into foreclosure fraud. The key reform that will be required immediately will be that banks (or mortgage servicers) provide a point of contact for mortgage borrowers.
There are far-reaching consequences for the point-of-contact rule for both borrowers and regulators. For borrowers, it ensures that there is someone at the bank they can talk to about the status of their mortgage and any pending actions related to it. Currently, large mortgage servicers route borrowers’ inquiries to call centers where representatives may not have current or accurate information on the loans, but that approach will no longer be permitted. The change also provides a new kind of leverage for regulators. If a person serving as a point of contact for mortgages repeatedly handles mortgages improperly, he or she can be fined or banned from the banking industry.
A criminal investigation into foreclosure fraud is continuing, and the Fed has hinted at regulatory penalties for lenders that participated in foreclosure fraud.
Iceland voters again turned down a plan to have their government pay back deposits from failed banks with a punitive interest rate. The case will now go to an international court, where the depositors are likely to recover only about two thirds of their deposits.
Portugal met its debt payments today, defying expectations that it would need new financing at this point. Portugal is attempting a bond auction next week to cover its payments due in May and June. The Portugal bailout is now in doubt, with European Union countries now thought to be unlikely to approve it. This could be the end of the financial attack on Europe, as investors try to squeeze higher interest payments from the financially weaker European countries one by one. Instead of agreeing to pay ever-increasing interest rates, countries under attack from here forward may simply stop paying interest on their debts. If Europe turns out to be out of reach for financial attack, the United States may very well be the next target.
For anyone who was beginning to hope that the large bank failures were behind us, there were two unsettling reports this week. The quarterly report from Bank of America showed that the United States’ largest bank is still not making a profit on operations and its legal fees are inching up toward $1 billion per quarter, while Wall Street is gossiping about its latest panicky executive changes. Meanwhile, an almost-large Alabama bank, Superior Bank, failed tonight, in the largest bank failure of the year so far.
By most measures, Superior Bank would be considered a large bank. It had 73 locations, 45 in Alabama and 28 in Florida, along with 24 lending offices. But by 2010, it was no longer large in financial terms, with $2.7 billion in deposits at the end of the year. A cease-and-desist order had given Superior Bank until the end of March to shore up its capital and fix its broken business model. It was late with its financial reports and faced a Nasdaq delisting next month after its market capitalization fell below $10 million, 99 percent below its 2006 peak. Its CEO left last month.
By most accounts, the problem at Superior Bank was a sloppy approach to home mortgage lending, with its eye on the number of loans it was writing rather than the quality of loans. Nearly all bank failures in the last year or so have been driven by problems in commercial real estate and real estate development lending, but Superior Bank’s problems point more toward home mortgages.
Community Bancorp, a Houston-based bank holding company that had accumulated capital to purchase distressed banks, is taking over the deposits and purchasing the assets, keeping the Superior Bank name for its newly-chartered subsidiary bank. Community Bancorp had previously purchased Mississippi-based Cadence Bank.
A second medium-sized bank failed in Alabama tonight. Nexity Bank had $638 million in deposits. Its headquarters was in Birmingham, Alabama, and it had two other offices, in Atlanta, Georgia, and Myrtle Beach, South Carolina, but it billed itself as an Internet-based bank. A new bank created by two banking executives, AloStar Bank of Commerce, is taking over the deposits and purchasing the assets.
Nexity’s holding company had been in bankruptcy for nearly a year. Its creditors, the largest of which is Bank of America, aren’t likely to get much from the bankruptcy court now that the FDIC has seized the bank. The holding company filed for bankruptcy after discovering that a quarter of the bank’s loans were in default.
Nexity’s loans were mostly shares in real estate development loans written by other banks nationwide. In theory, the geographical dispersion of loans should have provided some protection from risk, but instead, real estate troubles hit the whole country essentially all at once.
Two banks failed in Georgia. The larger was Bartow County Bank, with four locations just north of the Atlanta metro area. It is fair to say that Bartow County Bank was financially exhausted. It reported $330 million in assets at the end of last year, compared to $304 million in deposits, but the quality of the assets was conspicuously less than you would expect to see in an operating bank.
Hamilton State Bank is taking over the deposits and purchasing the assets.
Also in Georgia, New Horizons Bank was closed. North Carolina-based Citizens South Bank is taking over the deposits and purchasing the assets.
Small banks also failed in Mississippi and Minnesota. Heritage Banking Group had almost $200 million in deposits and eight branch locations, with its headquarters in Carthage, Mississippi, in the central part of the state. Trustmark National Bank, based nearby in Jackson, is taking over the deposits and purchasing the assets.
In Rosemount, Minnesota, a suburb of Minneapolis, Rosemount National Bank was closed. Central Bank is taking over the deposits and purchasing the assets.
The NCUA put two credit unions in conservatorship tonight: Texans Credit Union, in Texas, with 133,000 members, and Vensure Federal Credit Union, in Arizona, with 144 members, mostly employees of Vensure Employer Services. The credit unions will continue to operate under NCUA management.