FDIC: Subprime Mortgage Lender
It seems a little counter-intuitive that the government insurance agency would take over a failed bank and then continue its practices. But that’s just what the FDIC did back in 2001 when it took over Superior Bank FSB. As new information comes to light about the mortgage market crash, there are questions about the way the FDIC runs the banks it takes over. Instead of cleaning up some of the subprime mortgage lending practices, the FDIC continued on with Superior’s policy of approving subprime loans to homebuyers — some of which were obviously unqualified.
When the FDIC takes over a bank
When the FDIC takes over a bank, it basically operates the bank until it can find a buyer. The FDIC manages the day to day banking transactions, and allows people to withdraw their money from the bank if they wish. Indeed, IndyMac is a prime example of what happens when the FDIC takes over a bank. Most operations are moving forward, including the acquisition of some of the real estate and mortgage sections by Prospect Mortgage.
The problem is that sometimes it can take months to find a buyer. With Superior, the FDIC decided to keep on providing loans to homebuyers. Unfortunately, the FDIC decided to follow the trend back in 2001, rather than evaluating the lending practices. As a result, quite a few of the foreclosures we are seeing with the current mortgage market mess were given by the government — using some of the same shoddy (and even predatory in some cases) lending practices that caused the downfall of the housing market.
One hopes that everyone can learn from the current mortgage mess: lenders, government regulators and homebuyers alike. But until then, one hopes that we don’t receive any more revelations like those regarding the FDIC’s subprime mortgage lending practices.
Tags: subprime mortgage, FDIC, home mortgage loan, mortgage loan blog,
subprime mortgage, IndyMac
