Repurchases of Superior Federal, FSB, Loan Assets Sold to Beal Bank – Footnotes
September 13, 2004
Audit Report No. 04-035
Footnote 1: The FDIC acts as a receiver for failed insured depository institutions. As receiver, the FDIC is charged with winding up the affairs of failed institutions, including the liquidation of failed institutions and the disposition of their assets. The FDIC also acts as the primary federal regulator for state nonmember banks. All FDIC business activity reviewed in this audit was undertaken by the FDIC in its receivership capacity.
Footnote 2: A conservator is a person or entity, including a government agency, appointed by a regulatory authority to operate a troubled financial institution in an effort to conserve, manage, and protect the troubled institution's assets until the institution has stabilized or has been closed by the chartering authority.
Footnote 3: Asset claims arise from contractual obligations under sale agreements made with purchasers of loans and loan-related assets.
Footnote 4: A bridge bank is similar to a conservatorship except that a bridge bank results in a new national bank chartered by the Office of the Comptroller of the Currency.
Footnote 5: The OIG took these inherent differences into account in performing, and reporting on the results of, this audit.
Footnote 6: New Superior conducted loan sales to purchasers other than Beal during the conservatorship period; however, such sales were not the subject of this audit.
Footnote 7: A subperforming loan is one in which the borrower is making reduced payments consistent with historical financial statements or is presently performing but is projected to ultimately default on the loan due to a future severe negative event. A nonperforming loan is one that is 60 or more days past due or is past the note or modification maturity date, regardless of whether ongoing payments are being received from the borrower.
Footnote 8: R&Ws and other provisions for repurchase can be offered in conjunction with loan sale offerings. The R&Ws promise to cure, substitute, or repurchase loans found to be in violation of certain requirements. (Such requirements include, for example, proper documentation, accurate loan amounts, and correct loan-to-value ratios.) As an example of an R&W or other provision for repurchase, the seller may be required to reimburse the purchaser for tax penalties and interest in the event tax returns were not filed and/or tax payments were not made as represented by the seller.
Footnote 9: Due diligence is a review of pertinent files so that informed decisions can be made about the value of the failed institution's assets.
Footnote 10: A loan sale case memorandum is prepared to seek authority from the conservatorship Board of Directors to hold the sale under the terms and conditions in the memorandum.
Footnote 11: Additional claims could occur because, as discussed later, Beal agreed to temporarily cease submitting claims.
Footnote 12: Predatory lending is an umbrella term generally used to describe cases in which a broker or originating lender takes unfair advantage of a borrower, often through deception, fraud, or manipulation, to make a loan that contains terms that are disadvantageous to the borrower.
Footnote 13: Loan-to-value refers to a comparison of the amount owed on a mortgaged property to its fair market value.
Footnote 14: In this context, "tolling agreement" refers to an understanding that suspends the time limitations for filing claims under the contract.
Footnote 15: The R&Ws are detailed in Appendix II and show that the R&Ws offered by New Superior were more comprehensive in that they provided greater protection to the purchasers of the loans.
Footnote 16: Management of Assets, an August 23, 2002 lessons learned article regarding New Superior by DRR managers, acknowledges that it … "is the inherent FDIC responsibility to direct all sales according to DRR asset disposition policies and procedures and the belief that such responsibility should not be superceded by the form of FDIC control over a bank, whether Conservatorship or Receivership."
Footnote 17: An FDIC Board of Directors Resolution, dated December 20, 2001.
Footnote 18: In response to anecdotal evidence about abusive practices involving home-secured loans with high rates or high fees, in 1994, the Congress enacted the Home Ownership and Equity Protection Act (HOEPA) as an amendment to the truth in lending Act (TILA). TILA requires creditors to disclose the cost of credit as a dollar amount (the "finance charge") and as an annual percentage rate (the "APR"). TILA requires additional disclosures for loans secured by a consumer's home and permits customers to rescind certain transactions that involve their principal dwelling.
Footnote 19: See Appendix I for more information regarding our sampling methodology.
Footnote 20: The RTC's legislatively mandated sunset date was December 31, 1995. Responsibility for all RTC-related work as of that date was transferred to the FDIC in accordance with the RTC Completion Act.
Footnote 21: On the bank closing date, Old Superior had agreements in place to sell approximately $346 million in loans to four of its primary whole loan purchasers—DLJ/First Boston, Countrywide, Merrill Lynch, and Equity One. Authority was granted to the conservatorship staff to continue to sell loans into the forward contracts provided they were sold at the terms in place as of the bank closing date.
Footnote 22: WRAPS is the management information system used by DRR's Asset Claims Unit to monitor and enact the asset claims program and its functions.
|