Foreclosure Crisis Leads Two Jumbo Thrifts in California to Be Shut Down By the Federal Regulators

Last Friday (21st November 2008) the federal regulators shut down two jumbo thrifts in California. This is all a fallout of the foreclosure crisis. U.S. Bank of Minneapolis acquired the deposits of both. The Federal Deposit Insurance Corporation has been asked to act as receiver of the two.

Downey Savings and Loan Association of Newport Beach and PFF Bank & Trust of Pomona became victims of the foreclosure related financial crisis and cause the feds to take action. In 2008 this is the 22nd bank to fail.

Downey ranked 23rd as the largest savings and loan bank, having assets worth $12.8 billion and deposits calculating to $9.7 billion as on 30th September 2008. PFF ranked 38th with assets worth $3.7 billion and deposits of $2.4 billion.

Regulators of Georgia also shut down the Community Bank. It is a modest bank in Loganville. FDIC was appointed receiver of the bank, which shows assets worth $681 million, and deposits of $611.4 million. FDIC announced that all the deposits of the bank and assets would be taken over by the Bank of Essex of Tappahannock. On Monday all the four branches will open again as Bank of Essex.

According to the office of Thrift Supervision the two California thrifts had been undergoing losses since the previous year. Downey had been focusing on non-conventional highly risky house mortgages. Downey has been badly mauled by the rising number of defaults in its Option-ARM mortgages that allowed borrowers to choose their mode of payment each month. Sometimes this was less than even the due interest. These Option-ARM loans have been the worst performing ones contributing largely to the foreclosure crisis.

PFF had been set up in 1892. It held a huge number of loans relating to housing construction. The falling real estate market, especially in the West Coast has hit it hard.

John Reich is the director of Thrift Supervision. He said, “The closing of these two thrifts once again demonstrates the tremendous impact of the housing market distress on the state of California.” In the current year four out of five institutions under the regulation of this agency that have failed are based in California. Each of them is large and weighty. In July IndyMac Bank of Pasadena in California with assets worth $32 billion had to be taken over.