In a congressional hearing that concluded last evening, Jaime Herrera Beutler pushed representatives from the FDIC and Lennar Homes/Rialto Capital for answers regarding the negative fallout of the Bank of Clark County's early 2009 collapse.
"Today I want to find out what led the FDIC to give an extremely favorable deal to Rialto. Consider the terms of the agreement between the FDIC and Rialto, and the phrase "sweetheart deal' comes to mind," Jaime said in her opening statement. "I believe that had Mr. Fogg or any other homebuilder been given a 10 year, 0% interest loan they would have provided a much higher return than 8 cents on the dollar," she later said.
Throughout the hearing, Jaime joined other Democrat and Republican Members of Congress in pushing for answers on how the loan transactions could have led to hardship for so many borrowers. One question that went unanswered: when banks fail, who protects the existing loan agreements with small business loan holders?
Not the FDIC, according to the testimony presented by former Bank of Clark County borrower Ed Fogg, owner of Fogg Construction. Mr. Fogg described in detail 3½ years of working diligently to make payments and come to a deal on his loan. He testified that while the FDIC managed his loan after the bank failed, it had instructed him to finish his homebuilding projects with his own money, with a promise of repayment -- only to later renege on the agreement. Neither the FDIC nor Rialto ever worked out a deal with Mr. Fogg, and on May 3, 2012, Fogg Construction filed for bankruptcy.
During the hearing, the FDIC's Inspector General said that his agency has begun conducting a full audit of its loan transaction deals managed by Rialto. The FDIC expects to release a summary of the report by September of 2012.
"The FDIC's structured loan program was supposed to be a "backstop' that lessened the negative consequences when banks fail in this country. Yesterday's hearing established that in the lives and businesses of many, it failed miserably in this regard," said Jaime. "It appears that a real estate conglomerate got a great deal, and hard-working small business owners like Ed Fogg were cast aside and treated as the lowest priority. Nearly every borrower having trouble with Rialto who approached my office said they knew other borrowers who had hit the same brick wall."
"I'm glad to see that the FDIC Inspector General is taking this seriously enough to conduct an audit of Rialto's transactions, and I look forward to reviewing those findings. I still have questions about FDIC giving such a favorable deal to Rialto, whose parent company is now competing in the Vancouver housing market. There is more to do, more information to gather, and I remain committed to getting answers and seeking ways to prevent this from happening again."