Forum Post: Innocent borrowers at failed banks have lost billions due to the FDIC policy

Mention the FDIC and most people react with a warm fuzzy because the FDIC protects their deposits up to $250,000. If you knew what happens to borrowers after the FDIC takes over a bank, you would react with a cold chill. Don’t think you need to worry? The FDIC troubled bank list is at 865, the highest it has been since 1993, and it’s not dropping as it has in normal economic cycles. Click here for more information on the FDIC Problem Bank List. What most people don’t know When the FDIC arrives at a Bank, the first order of business is to settle the deposits. This means deposits less than $250,000 are transferred to the acquiring bank. For the unfortunate depositors with funds in excess of $250,000 (often required for loan collateral), the excess is immediately taken by the FDIC. If you have a loan at the bank, the FDIC will typically offset your loan or accrued interest by the amount of the deposit funds you lost. Either way, you lose the liquidity. But that is just the beginning. Deposits are the liabilities of the Bank, loans are the assets. The real work of the FDIC involves liquidating the loan portfolio. This is done a number of ways, but for borrowers, most of them are not good. A borrower may be current on its loan, even prepaid interest for a year or more, and the loan will be liquidated. This means the loan is transferred to the acquiring Bank (a sweet deal for the acquiring bank since its losses are protected by the FDIC). Some loan portfolios are packaged and sold through www.debtx.com. Others are packaged and sold through arranged deals with hedge funds like Lennar/Rialto. Lennar is actually a building company, but being clever and connected in Washington, it has arranged sweet no-risk deals to buy loan packages – in essence with taxpayer money (taxpayers are the fallback for FDIC). Here is the problem Loans are not static. Many loans are partially funded for lines of credits or ongoing projects. But if the FDIC gets a hold of that loan, it typically will stop funding the loan and the related project is in grave jeopardy. Billions of dollars in projects have been lost for this reason. It gets worse. Since the project that was being funded by the loan is stopped, it loses its ability to cash flow and the borrower loses its ability to support the loan. Result: the loan defaults. Once the loan defaults, the new bank or hedge fund that acquired the loan moves on the asset and the borrower, foreclosing the asset and calling on the personal guarantees of the borrowers. The impact of this is huge. Thousands of individuals and businesses have been forced into bankruptcy because of this practice. Thousands of jobs have been lost and continue to be lost because of this practice. Clearly it is having a huge impact on the American economy. Check on Your Bank This is not a policy statement. This is a warning: Check the status of your bank. Is it on the FDIC Problem Bank List? If it is on the list, my recommendation is to immediately move your deposit and loan to another bank while you are strong enough to do so. After the FDIC shows up and asks you to move the loan, it will be too late. I know people who are still struggling since the Bank they were using was seized in 2008. Go to American Land Rights at http://www.landrights.org/ for more information. This is a group that has formed to bring this issue to light. The subject is passing under the media spotlight because it is too complex for most talking heads in the media to comprehend and explain to their viewers. If you are a borrower, it is important in today’s fragile economy that you are aware of this potential risk the very survival of your business. Beware and be wise. Seems whenever Wall Street and K Street get together we all lose. Lennar is recording substantial profits gained by stealing from the American taxpayer with the help of the Feds.