Two lending institutions bite the dust
This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.
Federal regulators pulled the plug on both Newport Beach-based Downey Savings & Loan Assn. and PFF Bank & Trust of Pomona on Friday, placing the blame on the state of the California housing market.
For those who are counting, that makes 22 such bank failures this year in the U.S. The Associated Press reports:
‘The closing of these two thrifts once again demonstrates the tremendous impact of the housing market distress on the state of California,’ said John Reich, director of the Office of Thrift Supervision, in a statement. This year, four of the five failures of institutions regulated by the agency -- and all the ones of significant size -- had major concentrations in housing finance business in California, he said.In July, another big savings and loan, IndyMac Bank based in Pasadena, Calif., failed and was seized by regulators with about $32 billion in assets.The FDIC estimated that the resolution of Downey will cost the federal deposit insurance fund about $1.4 billion, while that of PFF will cost an estimated $700 million.
Yes, $1.4 billion. The woes relate to those adjustable-rate mortgages with flexible payment options, monthly rate adjustments and low minimum payments for the first few years. The AP continued: ‘Option ARMs have been among the worst-performing loans during the downturn in the real estate market.’
Bad for the borrower and bad for the bank.
-- Lauren Beale
Thoughts? Comments?
