Estate of James Waldo Hendrickson - Page 19




                                        - 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