- 19 - triggered concerns at Peoples over increased risks of default or delinquency, Peoples did not raise its interest rates. c. Loan Underwriting and Documentation Loan decisions were made by a four-person loan committee on the basis of a loan application. Peoples' underwriting procedures were criticized by the FDIC for a number of shortcomings. Until early 1993, for example, Peoples did not require credit reports or title insurance for residential mortgage loans and did not check whether flood insurance was required on the property being financed.10 Contrary to standard industry practice, Peoples made loans without verifying the market value of the underlying collateral through independent appraisal. Instead, Peoples used less reliable in-house appraisals that did not conform to the format used by independent appraisers. In some cases, Peoples even recycled old appraisals of a property, rather than obtaining a new appraisal that would reflect current market values. Unlike most mortgage lenders, Peoples did not sell any mortgage loans in the secondary mortgage market. Peoples had unsuccessfully tried to sell mortgage loans in the past to Fannie Mae and Freddie Mac but did not have underwriting practices and documentation sufficient to comply with the standards of the 10 There was a high likelihood of flooding in some areas served by Peoples; the Ohio River is the southern boundary of Warrick County.Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
Last modified: May 25, 2011