Failed FDIC-Run Bank Added Fuel to Subprime Fire

An Illinois bank seized by regulators in 2001 continued to write risky subprime mortgages for months after it was put under the day-to-day supervision of the Federal Deposit Insurance Corporation, the Wall Street Journal reports. Many of the loans—some with interest rates above 12%—have been foreclosed; a Texas bank that bought a portfolio of the loans is suing the government.

The FDIC operated Superior Bank for months while searching for a buyer—and continued to originate loans. The agency plans to keep the recently seized IndyMac Bank open as well, but it won’t be making mortgage loans. An independent auditor said many of the loans Superior made while under FDIC control were of poor quality and should not have been made. (More FDIC stories.)