Suburban Federal and the seeds of bank failure
Robert Little and Andrea Walker get beyond the press releases today to tell the story of Crofton-based Suburban Federal Savings Bank, seized by federal regulators after too many mortgages went bad.
They note that the bank "led a relatively benign existence" until 2004, when it opened satellite loan offices and said yes to mortgages that borrowers did not prove they could afford. They describe it as a case of pressure to keep up. The bank was losing out:
Competitors were loosening standards and reaping profits in the mortgage business as Suburban offered conservative loan products with uninspiring interest rates. ...Management relented and started offering more innovative loan products with relaxed terms and little or no credit or documentation required. It also began making considerably larger loans, often to customers it didn't know, in areas where it did little or no banking business.
I wonder how many bank -- and financial institution -- failures would have been averted if the executives and directors could have stomached a decline in mortgage business at a time of loan frenzy.
