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November 9th, 2008

Another Friday Means More FDIC Actions

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As is its custom, the Federal Deposit Insurance Corp. (FDIC) waited until late Friday to announce additional bank takeovers. Franklin Bank (Texas) will merge into Prosperity Bank of El Campo, Texas, and its branches will reopen under the new name on Monday. Under a similar arrangement, Security Pacific Bank (Los Angeles California) will sport the name of its merger partner, Pacific Western Bank, also based in L.A. The two takeovers are the 18th and 19th bank failures this year.

Franklin Bank’s takeover was noteworthy for one ironic reason:

The co-founder and chairman of parent Franklin Bank Corp. (FBTX) (FBTX), Lewis Ranieri, is credited with inventing mortgage-backed securities two decades ago, but apparently was unable to save his own company from getting ensnared in the home-loan bust.

The bank’s failure is a bitter irony because it is the mortgage securitization business of which Ranieri is known as a pioneer – the repackaging of home loans as bonds that are sold to investors – that was at the heart of the mortgage and credit crises. Last spring, the audit committee of the company’s board found in an investigation certain weaknesses in accounting, disclosure and other issues relating to residential real estate loans.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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