Tuesday, December 22, 2009

Feds Shut Down Peoples First Bank - Was Denying All Short Sales Part of Its Demise?


About a year ago I wrote about People's First Community Bank in "Short Sale Denied - Despite Cancer Diagnosis". My seller's husband had kidney cancer, and her financial situation had become tenuous. She could no longer afford the payments on her lot near Destin Florida.

I worked to help her do a short sale to avoid foreclosure. When we sent in the contract, People's First told me they "do NOT do short sales, period". I called them and reiterated the diagnosis of kidney cancer, wondering how this woman could keep up with her payments. I also asked, "Why would your company not consider a short sale in this economy?" I was told they had "not given any subprime loans, they were well-capitalized, and when they lent money, they expected to get it paid back". I said, "So you'd rather foreclose?" They said "Yes". When I told them I would write about the story in my blog, they warned me not to.
Today it was announced that the federal Office of Thrift Supervision has closed People's First. A few weeks ago the bank was notified by OTS for Prompt Corrective Action because they were deemed "significantly undercapitalized". Basically, a bank's capitalization rating has to do with its percentage of capital, like cash, as compared to its risk-based assets, such as mortgage loans. According to the FDIC:" Well Capitalized" means a total risk-based capital equal to or greater than 10 percent, "Adequately Capitalized" is a risk-based capitalo ratio equal to or greater than 8 percent. People's First capital ratio has been reported at 2.55.
My question is, could Peoples First's policy of refusing any short sale been part of its downfall? If the bank insisted on foreclosing and repossessing properties, wouldn't that have added to its risk-based assets? If they had allowed short sales, wouldn't their percentage of risk-based assets have been decreased?Finally, wouldn't allowing short sales have helped them live up to their motto, “The Best Bank in the Neighborhood"?


It's Wendy!
Wendy Rulnick, Broker, Rulnick Realty, Inc.
Call toll-free 1-877-487-9639 or local 850-650-7883 ext 204
Email Wendy: itswendy@rulnickrealty.com

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