FDIC Faces Mortgage Mess After Running Failed Bank

[moh malekpour]

http://online.wsj.com/article/SB121641296022866029.html?mod=hps_us_whats_news

Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn't afford them

It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court

The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill. Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank's subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data.

The FDIC then sold a big chunk of the loans to another bank. That loan pool was afflicted by the same problems for which regulators have faulted the industry: lending to unqualified borrowers, inflated appraisals and poor verification of borrowers' incomes, according to a written report from a government-hired expert. The report said that many of the loans never should have been made in the first place.

 

[William K]

"We're from the government, we're here to help" m2:

 

[Thomas Fiehler]

A local TV station ran a section in the news last week predicting that there will be an increase, possibly significant in numbers, of people who will simply walk away from their house once the value of the property has decreased to the level of the mortgage or lower than the mortgage amount.