Good - I hope this Bastard goes to Jail and is fined the maximum amount

[badgalbetty]

   

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Portland > News > Industries > Banking & Financial Services
Friday, February 19, 2010, 2:46pm PST  |  Modified: Friday, February 19, 2010, 3:04pm
Former Bank of Clark County executive pleads guilty to felony charge
Portland Business Journal
The Insider
The Bank of Clark County's CEO knew 10 months before the bank's failure that declining property values threatened to put it out of business, according to a plea agreement filed Friday in U.S. District Court by a former colleague.

The agreement outlines former Chief Lending Officer David Kennelly's guilty plea on a count of “scheme to conceal material facts.” It also provides new insight into the causes of the Vancouver, Wash., bank's Jan. 16, 2009, collapse.

It is not clear whether CEO Mike Worthy knew of Kennelly's scheme. But according to Kennelly's plea statement, at least five bank employees were aware of efforts to hide loan details from the Federal Deposit Insurance Corp. and state regulators.

When one of those workers ultimately tipped off the FDIC, Worthy “falsely responded” to a request to talk to bank employees, according to Kennelly's plea.

Kennelly's sentencing is scheduled for May 14. He faces a maximum penalty of five years in prison and a $250,000 fine.

The plea agreement prohibits him from working at any U.S. bank or credit union again. If he violates the agreement, he could face five years in prison and a $1 million fine.

No other former Bank of Clark County employees have been charged. The U.S. Department of Justice declined to comment on whether any are under investigation or may face charges in the future.

Kennelly's crime has its roots in decisions made from 2005 to 2007, during the housing market boom, when the bank began modifying its lending guidelines to win the business of real estate developers.

When home sales cooled, this strategy backfired. Banks are required to set aside a cash in a loan loss reserve account to protect against the risk of default. As property values dropped, the need for protection and reserves grew.

By early 2008, the value of properties underlying Bank of Clark County loans had deteriorated so much that bank officials began to worry about how regulators would react at their upcoming safety and soundness exam, according to a statement of facts in Kennelly's plea.

Worthy, described in the plea agreement as “Chief Executive Officer M.W.,” worried that loan loss reserve requirements would be so steep that they would threaten the bank's capital levels, according to a March 4, 2008, e-mail to Kennelly.

If regulators forced the bank to adjust loan values down based on new appraisals, Worthy wrote, that could start a chain reaction that could ultimately force the bank to stop using brokered deposits, the “hot money” the institution used to fund its loans.

“If that happens, we will be out of business,” Worthy wrote, according to the plea.

Although his prediction ultimately came true, for 10 months the bank held on.

In May 2008, according to Kennelly's plea agreement, “Kennelly and other members of the bank's management concluded that due to BoCC's deteriorating asset quality, lack of capital, and lack of liquidity, it should be sold.”

But the institution did not find a buyer, while more and more appraisals showed that collateral values of housing development loans were dropping.

Then the FDIC and Washington state bank examiners scheduled a November 2008 safety and soundness examination of the Bank of Clark County.

The bank ordered new appraisals on 23 real estate-backed loans to prepare for the exam.

Before regulators arrived, Kennelly told a vice president identified as “K.B.” that there were several appraisals that Kennelly “did not want to see the light of day,” according to the plea agreement.

Over a series of meetings, Kennelly instructed at least five bank employees, all identified only by initials, to hide appraisals from bank examiners, according to the plea agreement.

[WarrenJ]

Plenty of blame to go around.  The greed of the realtors grossly inflating housing prices beyond their real value and contributing to this problem are getting very little of the heat. 

[Popeye the Sailor]

Plenty of blame to go around.  The greed of the realtors grossly inflating housing prices beyond their real value and contributing to this problem are getting very little of the heat. 

I'm not sure that's the realtors fault. Housing were selling for what people felt they were worth.

[WarrenJ]

Realtors get rich from creating the perception of higher values of real estate.  There is plenty of blame to go around, from people silly enough to borrow overwelming percentages of their earning ability to purchase real estate at the top of its market, thinking their earnings and the values of the real estate couldn't go down, to the unbridled greed of the real estate, banking and finance industries.  We have yet to see the worst of the effects of these actions.


Teddy Roosevelt hit it on the head nearly a century ago.


"Americanism means the virtues of courage, honor, justice, truth, sincerity, and hardihoodthe virtues that made America. The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living and the get-rich-quick theory of life."

[hbliam]

I'm far from a supporter of real estate agents. I believe most are dishonest and care little about anything but making more money but.....they have very little to do with the price of real estate. They can try to sell something for a price they pick all day long. In the end someone agrees that the price they are asking is a price they are willing to pay. That's what sets the pricing. I guess you should be blaming all buyers of real estate.

The bigger issue with Realtors? Getting paid a percentage instead of a flat or hourly rate. Why should a Realtor make 6% or 12K selling a house in 2000 for 200K and make 6% or 30K selling the same house in 2003 for 500K? They don't have to do anything different but get to make 150% more? That's the problem with Realtors.

[WarrenJ]

Good points.  I do think though that the realty industry is certainly complicit with the banks in convincing and allowing people to spend far too much of their earning power on their housing, just to line their own pockets. 

Perhaps it isn't a function of the price of the real estate but a function of the percentage of earning power of the buyer that was exploited. 

The banks do carry the major responsibility.  They of all groups know that all markets are cyclic and that the real estate market  as it existed was unsustainable. 

[Bun-bun]

You make it sound like realtors go 'round forcing people to buy property, when the reality is the opposite. Realtors got hit harder than almost anyone during the past two years, and nobody's offering them any bailout $$ either.
During the height of the bubble, houses were getting multiple bids, and bidding wars were common. This was not because of realtors, but of buyers, and banks with lax lending standards. Don't blame realtors if you spent more than you could afford. Noone put a gun to your head.

[hbliam]

You make it sound like realtors go 'round forcing people to buy property, when the reality is the opposite. Realtors got hit harder than almost anyone during the past two years, and nobody's offering them any bailout $$ either.
During the height of the bubble, houses were getting multiple bids, and bidding wars were common. This was not because of realtors, but of buyers, and banks with lax lending standards. Don't blame realtors if you spent more than you could afford. Noone put a gun to your head.

If they didn't save up funds during all those years of making big dollars then screw them.

[Howie]

Hopefully Mr. Kennelly took down some of the other execs too.

[Popeye the Sailor]

Good points.  I do think though that the realty industry is certainly complicit with the banks in convincing and allowing people to spend far too much of their earning power on their housing, just to line their own pockets. 

I bought a house within the last year-the realtor, at no point, was ever privy to what percentage of my pay I was spending. We told the guy our range-we looked at houses in that range. Simple as that.

[Bun-bun]

If they didn't save up funds during all those years of making big dollars then screw them.

Agreed, but not the point of my argument. Saying that realtors are responsible for a bank failure is like saying builders are responsible for the bank failure.
Both professions are involved in the housing market
Both profit when a new house sells
Both groups got hit hard in the slump

My point is, if you need to blame someone, blame the person who bought a house they knew they couldn't afford, and blame the bank that knew they couldn't afford it, but loaned them a skillion dollars anyway.
If my steak is overcooked, I blame the cook, not the farmer.

[teddy037.2]

I bought a house within the last year-the realtor, at no point, was ever privy to what percentage of my pay I was spending. We told the guy our range-we looked at houses in that range. Simple as that.

that's because you're a smarty

[hbliam]

Agreed, but not the point of my argument. Saying that realtors are responsible for a bank failure is like saying builders are responsible for the bank failure.
Both professions are involved in the housing market
Both profit when a new house sells
Both groups got hit hard in the slump

My point is, if you need to blame someone, blame the person who bought a house they knew they couldn't afford, and blame the bank that knew they couldn't afford it, but loaned them a skillion dollars anyway.
If my steak is overcooked, I blame the cook, not the farmer.

You are directing your comments at the wrong poster.

[WarrenJ]

 

[angler]

IMHO the only reason this crisis happened was the banking industry and the gubment, not realtors, not builders and not shady appraisers.

Was it the bankers' fault?  Yes and no.  The US gubment lowered the percentage of assets necessary to secure a loan.  This ratio, when set in favor of more debt, raises the risk of the debt. So the banks started giving loans with lower assets and therefore higher risk.  They could have protected this risk, as credit card companies do, by raising the interest rate.  Instead, they protected this risk by selling it in derivative markets (sort of, but you get the jist).  Could they have said as an industry that they weren't going to use the lower asset threshold? Yes, and some did.  Others counted on derivatives to keep them in a better risk situation than the loans they were writing.

Couple this with interest rates held artificially (IMHO) low by the US Treasury and we had the recipe for the perfect financial storm - one that economist had been talking about and seeing globally for probably 8 years before it happened.

What happened next?  Which chicken?  Who's egg?  That is a little harder to sort out, but I think it goes a little like this: On average, Amerikans are incapable of saving money.  We, as a nation, have actually dipped into negative savings.  With artificially low interest rates and more lax mortgage standards, people that already owned houses borrowed against future appreciation to pay for current consumption.  The gubment pushed and pushed for home ownership, even for those that probably shouldn't own a home.  Why did the government push?  Because they knew that all of the asset bubble was being spent in the economy.  In fact, it was fueling our growth.  So why shouldn't the gubment encourage more deficit spending?  (Because it was TOO RISKY - but nobody pays attention when it is raining money).  Where did the bubble come from? Speculation on unsustainable growth levels spurred to life by this "artificial" injection of cash that was required as asset only a few years before.  So we have a gigantic asset floating out there on bank asset sheets that is worth much less than value on paper.  You can't hedge that sort of risk, at least not for very long.

I'm not saying some realtors didn't give bad advice.  I'm not saying some appraisers inflated appraisals to meet loan needs.  Trouble is, that shit has been happening long before this crisis and will continue.  (I've had my real estate license in several states, so I'm not bashing realtors).  What changed?  The risk buffer, in the form of the debt to asset ratio, was lowered leaving the US banking industry teetering on the brink of melt down.