The Office of Thrift Supervision did not fully scrutinize a West Virginia thrift's ties to a mortgage broker that helped trigger the institution's September failure, according to a government watchdog report.

The Treasury Department inspector general's report said that, despite regular OTS examinations of $104 million-asset Ameribank Inc., "the thrift's high-risk business strategy should have warranted more careful and earlier attention to address Ameribank's rapid growth in high-risk concentrations."

The inspector general — who is required to analyze failures that cost the Deposit Insurance Fund significant amounts — said Ameribank failed in large part because of its relationship with LendingOne, a third-party broker that brought in a heavy volume of construction rehabilitation loans. The thrift "did not exercise sufficient oversight of the LendingOne relationship," the report said.

But the watchdog also said the OTS had ample time to identify and respond to risks posed by the relationship. "OTS did not adequately sample the LendingOne loans" before Ameribank's "April 2007 examination and did not thoroughly review the thrift's agreement with LendingOne until 2007, even though" the "relationship … extended back to 2003."

In a letter responding to the Ameribank report, an OTS official said the agency concurs in the inspector general's recommendations, which include reminding examiners to analyze loans within concentrations and assessing the need for guidance on construction rehabilitation loans. "OTS is committed to strengthening its supervisory process and has been responsive to recommendations and lessons learned from prior internal failed-bank reviews and material loss reviews," wrote Timothy T. Ward, the agency's deputy director for examinations, supervision and consumer protection.

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