The seizure on Jan. 22 of Charter Bank of Santa Fe, N.M., by the Office of Thrift Supervision underlines what could be a new trend in the mortgage business — lenders involved in both residential and commercial mortgage lending brought low by a double dip in two bad markets.

Charter Bank, New Mexico's largest state-based mortgage lender, escaped the subprime mortgage disaster with no problem. Indeed, no New Mexico-based financial institutions failed during the subprime crisis, because they left that kind of lending by and large to out-of-state institutions, which did fail.

With $905 million in mortgages originated in 2008 ($622 million in-state), Charter was a top 200 mortgage lender. But the swift deterioration of the commercial mortgage business, following so soon on the residential crisis, seems to be proving a potent foe to institutions that do both kinds of lending.

In fact, the OTS' cease-and desist-order to Charter Bank last year and the Federal Reserve and New Mexico Regulation and Licensing Department's regulatory agreement with First Community Bank, Albuquerque, another top New Mexico mortgage lender, both reference high concentrations of commercial real estate.

A look at the OTS C&D and Charter's third-quarter 2009 filing with OTS shows an institution clearly shipping water. (This point is underlined by the government's announcement that $805 million of Charter's $1.2 billion in assets will now be in a "loss-share" arrangement with the new Charter federal savings bank, not exactly a vote of confidence in the expected performance of those assets. Charter's failure is costing the FDIC $201 million even before any loss-sharing on bad assets.)

The OTS C&D ordered the former Charter Bank not to continue "the unsafe or unsound banking practices that resulted in the current high level of classified assets, inadequate capital, and the failure to implement policies and strategies to address liquidity risks." The OTS also called for a plan to reduce the thrift's level of commercial real estate loans.

Charter's 3Q Thrift Financial Report shows capital of $26.5 million, which is just 2% of assets. Charter reported a loss of $69.7 million for the quarter, which, with a similar loss from First Community (a unit of First State Bancorp of Taos), was enough to throw the entire state's financial institutions into an aggregate loss for the quarter.

The thrift also suffered from loan delinquencies and foreclosures. Some $27 million of its loans were 30-89 days overdue, another $12.5 million was 90 days or more late, nonaccruing loans were a hefty $68 million, $35 million were loans in the process of foreclosure and the thrift had $22 million in repossessed assets on its books.

Of its $805 million in mortgage assets at the end of the third quarter, about $102 million were in construction and $118 million were on nonresidential property. With another $114 million in multifamily loans, that's about $334 million that can be considered as commercial real estate, or about a quarter of all Charter's assets. That's several times higher than regulators' preference that CRE be kept to 300% of capital.

While Charter was the first FDIC-insured institution to fail in New Mexico since 1999 (the state has a relatively stable economy with lots of military funding and two well-funded national laboratories), it is the second big New Mexico mortgage lender to fail within a year.

Last year, Thornburg Mortgage, a real estate investment trust based in Santa Fe, failed after a long effort to keep ahead of a strangling liquidity crisis in its jumbo mortgage niche. Thornburg was actually a larger lender than Charter but did much of its business out of New Mexico through a series of loan correspondents around the country.

Who will take over the reins as the biggest in-state mortgage lender in New Mexico? (Three out-of-state lenders, Bank of America, Wells Fargo and Chase, all do more mortgages than any of the in-state lenders.) The new federal Charter Bank, now a unit of a Texas corporation, seems unlikely to quickly wade back into waters where it got such a drubbing. First Community will be paying close attention for now to abiding by the wishes of its regulators.

The frontrunner appears to be Los Alamos National Bank, which was fourth in the 2008 Home Mortgage Disclosure Act rankings, behind Charter, Thornburg and First Community. Through the first three quarters of 2009, it had made $348 million in mortgages, handily beating First Community, which was at $248 million.

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