FDIC clarifies concerns of those who borrowed from failed bank

Friday, March 14, 2008

After the failure of the Hume Bank the Federal Deposit Insurance Corporation set up an informational Web site at http://www.fdic.gov/

bank/individual/failed/Hume.html. At that Web site the FDIC posted information that depositors, borrowers, creditors, stockholders and the public could access about the failure.

It assured depositors that their money was protected up to the $100,000 limit of insurance, and in some cases even more. It also told borrowers that the terms of their loans would not change under the terms of the loan contract because they are contractually agreed to in the promissory note.

Some loan customers have received letters from the FDIC that has caused concern among them and David Barr, FDIC spokesman, said it was due to a misunderstanding.

"I think the relevant paragraph is the one which says that the loans will be sold and those customers who wish their loans to be serviced locally should seek refinancing," Barr said. "It does not mean they must do so but the loans could be sold to an institution far away from here and if they want to keep things local they have to act before they are sold."

Scott Buerge, president of Metz Banking Company, said it wasn't unusual for the FDIC to sell the loans, or failing that to call them in.

"When the FDIC comes in they want to liquidate the assets and selling them is one way to do that," Buerge said. "If they are low quality loans and there is no one to bid on them the FDIC may be left holding them and they don't want that."

People who took out loans at the height of the housing market could be facing problems if their debt is higher than the collateral property value currently is, especially if they seek to refinance.

"The housing market is soft right now," Buerge said. "If someone is trying to refinance they could be facing a big problem."

Barr sought to allay any fears about the situation.

"Everything should continue as before except for where people send their payments. The letters were merely to let people know what their options were," Barr said.

The Hume Bank was closed after the close of business March 7. State regulators and the FDIC said that the closing was caused by the former management of the bank and was not because of any systemic problems with the banking system.

"The closing of Hume Bank in no way reflects a weakened condition of the Missouri banking system," Eric McClure, Commissioner of Finance for the State of Missouri, said.

"The demise of the bank is a direct result of alleged improprieties by former bank management, which resulted in past due loans not being reported and the true condition of the bank being misrepresented. Most of these loans were poorly conceived and inadequately serviced, resulting in losses which exhausted the bank's capital and ultimately resulted in its failure."

The bank was taken over by, and is now a branch ofm Security Bank of Rich Hill.

"All insured deposit liabilities have been assumed by Security Bank, Rich Hill, Missouri," said McClure at the time. "A Certificate of Authority has been issued to them to operate a branch in Hume, Mo., and this branch opened Monday, March 10, at the regular time and at the same location for banking business. All of the services that Security Bank of Rich Hill is authorized to provide at its locations in Rich Hill, Seligman, Washburn and Rockville may also be available at the branch in Hume."