FDIC Demand Letter to Failed Bank – A Look into Banking Practices During the Bubble

Bank United

FDIC demand letters usually remain confidential. The one below however, was filed in a bankruptcy court in November 2009.

The Demand Letter, which was attached to a motion from the FDIC to PROSECUTE CLAIMS AGAINST OFFICERS, DIRECTORS AND PREPETITION PROFESSIONALS (see below), gives an insight on what the FDIC is doing to recoup their loses and also sheds some light on what was going on in the banking industry during the bubble.

With a 140 bank failures last year and another 552 on the FDIC’s problem list, I am certain this is not the last one we will see…

“In 2006, the Bank had concentrated nearly 50% of its total assets in Option ARMs — growing the Bank’s mortgage portfolio from $6.116 billion on December 31, 2004 to $12.523 billion on December 31, 2007. In 2007, Option ARMs represented roughly 70% of the Bank’s residential loan portfolio and 60% of its total loan portfolio. By 2008, Option ARMs represented an astonishing 575% of the Bank’s capital.”

The letter accuses the directors and officers of;

 “negligence, gross negligence and/or breach of fiduciary duties related to certain residential loans made by the Bank.”

…”pursuing an overly aggressive growth strategy focused primarily on the controversial Payment Option ARM product”…

…”focused primarily on the controversial Option ARM product — at an excessive and reckless rate”….

…”Adopting an overly aggressive and reckless growth strategy by investing nearly half of the Bank’s assets in a single “controversial” loan product — the Option ARM without adequate “stress” testing and insufficient collateral coverage to withstand anything more than a minor decline in real estate values”….

…”altered mortgage broker compensation and incentives in a manner that took away any incentive for brokers to sell any product other than Option ARMs”…

…Encouraging an extremely liberal and aggressive lending mentality to “make the loan as long as the borrower has a pulse“….

…”Engaging in reckless, high-risk, and limited scrutiny lending to fuel the Bank’s aggressive and rapid growth — in direct contradiction to public representations of the Bank’s conservative lending and strict underwriting policies. In fact, low-quality mortgages were extended without fully verifying borrowers’ incomes, assets, and/or creditworthiness“…

…”disclosed that only 17.4% of the loans in its
residential mortgage portfolio were “full documentation / employment verified“.”…

…”high-risk lending was even more omnipresent in the Bank’s Option ARM portfolio. As of March 31, 2008, only 12.4% of the Bank’s Option ARM mortgages were fully documented and a shocking 31.3% of its portfolio ($2.3 billion) were no documentation loans“.

…”Chronically understaffing the Bank’s appraisal department, thereby preventing diligent and timely review of all appraisal information. This was further buttressed by a corporate culture and routine to undermine and/or circumvent a diligent appraisal process“…

blindly made loans to borrowers who, for the most part, were un-creditworthy, creating an unduly high risk of inevitable failure when the housing market began to decline”…

And once again, all this time I thought it was the fault of the scumbag, deadbeat, homeowners…

4closureFraud
http://4closurefraud.org/

FDIC Demand Letter Bank United

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The above letter was attached to this MOTION FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION TO ENFORCE THE ORDER GRANTING COMMITTEE’S MOTION FOR DERIVATIVE STANDING TO INVESTIGATE, ASSERT AND PROSECUTE CLAIMS AGAINST OFFICERS, DIRECTORS AND PREPETITION PROFESSIONALS.

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