Sins of subprime crisis return to haunt small lender

FDIC sues Virginia-based brokerage over defective loans from 14 years ago

National Weekend Edition /
Jun.June 05, 2022 03:00 PM
Current FDIC chair Jelena McWilliams and former FDIC chair Sheila Bair (Getty, iStock)

Current FDIC chair Jelena McWilliams and former FDIC chair Sheila Bair (Getty, iStock)

If you thought the subprime mortgage crisis had been relegated to the history books, think again. Like cleaning up glitter, the bulk of the mess may be gone, but specks continue to turn up.

One of those specks is Virginia-based Trustworthy Mortgage Corporation, which was anything but, according to the FDIC.

Sometime before 2008, the brokerage secured a mortgage for a borrower receiving $543 a month in Social Security. Yet Trustworthy wrongfully stated that the borrower was employed and making 10 times that amount in order to secure the loan, the FDIC alleges.

That was one of 35 allegedly defective mortgages brokered by Trustworthy totaling nearly $4 million, that are the subject of a lawsuit brought by the FDIC in California this week.

Reached for comment Friday by The Real Deal, Aaron Sun, a manager at Trustworthy Mortgage since 2018, said he had no idea the lawsuit existed.

“I’m not exactly sure what’s going on,” he said. “It was before my time.”

The lawsuit has its roots in the collapse of Washington Mutual during the 2008 financial crisis.

WaMu funded Trustworthy Mortgage’s defective loans and sold them into RMBS trusts, with a Deutsche Bank subsidiary serving as trustee. Deutsche Bank claimed it suffered losses as a result of the defective loans, according to the FDIC complaint. Those losses were then passed onto the FDIC, which took over as WaMu’s receiver in 2008.

In 2017, the FDIC paid Deutsche Bank more than $3 billion to settle losses incurred by the bank on RMBS loans tied to WaMu. That became the FDIC’s loss, for which the agency claims that Trustworthy, pursuant to an agreement with WaMu, is now responsible.

Trustworthy’s defective loans were a drop in the bucket against the broader struggles faced by WaMu, which had $11.6 billion in non-performing assets in September 2008 when it was shuttered by the federal Office of Thrift Supervision.

The lawsuit was filed toward the tail end of a six-year statute of limitations on the FDIC’s losses.





    Related Articles

    arrow_forward_ios
    964 Park Place (Google Maps, iStock)
    Documents shed new light on Crown Heights eviction saga
    Documents shed new light on Crown Heights eviction saga
    This former plantation in Virginia was purchase by an Air Force veteran who later found out his relatives had been enslaved there. (Google)
    Air Force vet unknowingly buys home where his ancestors were enslaved
    Air Force vet unknowingly buys home where his ancestors were enslaved
    Big banks expose themselves to subprime loans through other lenders
    Big banks expose themselves to subprime loans through other lenders
    Big banks expose themselves to subprime loans through other lenders
    From the archives: House of cards comes tumbling down
    From the archives: House of cards comes tumbling down
    From the archives: House of cards comes tumbling down
    Mortgage investors plan stance against Ocwen
    Mortgage investors plan stance against Ocwen
    Mortgage investors plan stance against Ocwen
    From left: Ben Bernanke and Jim Rogers
    Bernanke’s legacy will be “an absolute disaster”: OPINION
    Bernanke’s legacy will be “an absolute disaster”: OPINION
    Qualified mortgage rules give niche borrowers a leg up
    Qualified mortgage rules give niche borrowers a leg up
    Qualified mortgage rules give niche borrowers a leg up
    Former Freddie, Fannie CEOs deceived investors over subprime exposure: suit
    Former Freddie, Fannie CEOs deceived investors over subprime exposure: suit
    Former Freddie, Fannie CEOs deceived investors over subprime exposure: suit
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...