This past Sunday, CBS’s “60 Minutes” ran a segment about FDIC / Office of Thrift Supervision (OTS) bank takeovers. I think I heard or read somewhere that they’re calling in retired bank takeover specialists who are veterans of the S&L collapses of the ’80s.
Not surprisingly, the “60 Minutes” correspondent emphasized the overall stability of the retail banking sector, the continuity of customer service and asset guarantees once distressed banks are taken over by the feds, and the security of deposit accounts, now insured up to $250k as of 2006.
The piece didn’t really focus on which banks are vulnerable and why they have become insolvent. However, Maryland was mentioned as the site of a recent bank failure, which prompted me to look up the story of Crofton-based Suburban Federal Savings Bank, whose employees now pledge fealty to a bank based in Virginia’s Tidewater region.
A revealing follow-up story on the bank that ran in the Baltimore Sun shows us how this formerly modest and conservatively operated “community” bank mutated into a mortgage wholesaling monstrosity.
We learn about Maryland minister Samuel Burrow, Jr., who claimed in his loan documentation that he made something like $350k in annual earnings when he actually brought in an amount below the state median income of ~$65k. Nevertheless, this self-styled man of the cloth goes on to sue the bank for seducing and trapping him in a loan he couldn’t afford. Perhaps the good reverend was a proponent of prosperity gospel; he certainly ordered up a very worldly custom mega-McMansion. Unless this man was speaking in tongues or drooling on the loan documents in the Title office, his lawsuit looks pretty baseless.
However, this “community” bank was wildly irresponsible as well. After 2004, Suburban Federal grew very profligate very quickly while it aggressively fought for a piece of the action during the mid-decade asset commodification frenzy. Perhaps the old hands from the elder generation of this family of bankers should not have handed the reins over to junior so eagerly.
Not surprisingly, the “60 Minutes” correspondent emphasized the overall stability of the retail banking sector, the continuity of customer service and asset guarantees once distressed banks are taken over by the feds, and the security of deposit accounts, now insured up to $250k as of 2006.
The piece didn’t really focus on which banks are vulnerable and why they have become insolvent. However, Maryland was mentioned as the site of a recent bank failure, which prompted me to look up the story of Crofton-based Suburban Federal Savings Bank, whose employees now pledge fealty to a bank based in Virginia’s Tidewater region.
A revealing follow-up story on the bank that ran in the Baltimore Sun shows us how this formerly modest and conservatively operated “community” bank mutated into a mortgage wholesaling monstrosity.
We learn about Maryland minister Samuel Burrow, Jr., who claimed in his loan documentation that he made something like $350k in annual earnings when he actually brought in an amount below the state median income of ~$65k. Nevertheless, this self-styled man of the cloth goes on to sue the bank for seducing and trapping him in a loan he couldn’t afford. Perhaps the good reverend was a proponent of prosperity gospel; he certainly ordered up a very worldly custom mega-McMansion. Unless this man was speaking in tongues or drooling on the loan documents in the Title office, his lawsuit looks pretty baseless.
However, this “community” bank was wildly irresponsible as well. After 2004, Suburban Federal grew very profligate very quickly while it aggressively fought for a piece of the action during the mid-decade asset commodification frenzy. Perhaps the old hands from the elder generation of this family of bankers should not have handed the reins over to junior so eagerly.
“Court papers say that in April 2005, Burrow was constructing ‘a palatial, seven bedroom residential home on over five acres of property with amenities including a movie theater, recording studio, gym, and media room.’ Suburban agreed to refinance his existing $872,000 mortgage and give him $389,000 more to finish building. Two months later, Burrow settled a loan for $1.3 million, bringing in $41,000 in points and fees to the bank and the mortgage broker.
[....]
“What burned Suburban more than anything - not just on that deal, but on scores of loans - was that the value of houses and construction projects dropped when the real estate market cooled, often to less than the amount of the loan, [Baltimore-based loan broker Sidney P.] Levin said. Burrow's house was once appraised for $3 million.
“‘As long the value is going up, it doesn't matter,’ Levin said.
“Indeed, [deputy director of the Treasury Department’s Office of Thrift Supervision Timothy T.] Ward and other regulators say Suburban might have endured its foray into no-documentation lending if the real estate market hadn't crashed. But as values dropped, the amount of bad debt on Suburban's books soared. With capital of around $30 million, Suburban could not afford to have many large loans go into default.”
—“Suburban Federal’s short, sharp fall,” Baltimore Sun, February 22, 2009
The bank “might have endured if the real estate market hadn’t crashed”: Wow, this statement makes me wonder how many people are still laboring under the delusion that this comprehensive “market correction” wasn’t inevitable, given the massive quantity of counterfeit wealth that was manufactured at so many levels of the American economy before the financial market collapse of ’08/’09.[....]
“What burned Suburban more than anything - not just on that deal, but on scores of loans - was that the value of houses and construction projects dropped when the real estate market cooled, often to less than the amount of the loan, [Baltimore-based loan broker Sidney P.] Levin said. Burrow's house was once appraised for $3 million.
“‘As long the value is going up, it doesn't matter,’ Levin said.
“Indeed, [deputy director of the Treasury Department’s Office of Thrift Supervision Timothy T.] Ward and other regulators say Suburban might have endured its foray into no-documentation lending if the real estate market hadn't crashed. But as values dropped, the amount of bad debt on Suburban's books soared. With capital of around $30 million, Suburban could not afford to have many large loans go into default.”
—“Suburban Federal’s short, sharp fall,” Baltimore Sun, February 22, 2009
1 comment:
Number one. Don't believe everything you read. You're making stupid assumptions and mocking Mr. Burrow. You should refrain from judgment unless you actually looked at the paperwork behind the loan; who put the loan together; and what was their motive. You're defaming his character. Number two, two banks were involved, (Washington Savings Bank) along with a man named David Robinson, whom I urge you to look up and review his background. the two banks negotiated a buy out until the last second when the house was to be sold at an auction. Suburban, led by the owner and Mike Johnston (who both came out to the house and knew the house was nothing like it was advertised) told Mr. Burrow to take the deal they are offering him or lose his house; no lawyer would help with such short time frame. They wrote up the documents the way they wanted. So, faced with losing everything he invested (he owned the land - 5 acres before ever coming to any bank)he signed the papers. Investigate first.
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