FDIC banishes four bankers
The former Downey Savings executives include the failed thrift’s co-founder.
The former Downey Savings executives include Maurice L. McAlister, who co-founded the prominent Southern California thrift.
Four former executives at failed Downey Savings and Loan Assn. have been banished from the banking industry, including Maurice L. McAlister, a colorful developer, bass fisherman and nickelodeon collector who co-founded the prominent Southern California thrift.
The Federal Deposit Insurance Corp. accused the four of failing to adequately manage Downey’s core business of writing pay-option loans, the mortgages that allowed borrowers to pay so little that their loan balances went up instead of down.
Though nowhere near the size of some other thrifts brought down by high-risk lending, such as Washington Mutual Inc. and IndyMac Bancorp, Downey was a major issuer of the controversial pay-option loans. When the housing boom went bust, loan delinquencies surged and Downey was shut down by regulators in November 2008.
At the peak of the home lending frenzy, more than 95% of Downey’s pay-option borrowers chose to pay so little that negative amortization occurred, the FDIC said. It also cited the executives’ reliance on independent mortgage brokers and insufficient documentation of borrower income and assets as evidence of unsafe and unsound practices.
Without admitting wrongdoing, the four waived their right to contest the accusations at a formal hearing and agreed to lifetime bans on working for an Fdic-insured institution.
In addition to Mcalister, 87, they are Cheryl E. Olson, Mcalister’s daughter and former Downey vice chairman; Daniel D. Rosenthal, a former chief executive of the thrift and former son-in-law to Mcalister; and Downey’s longtime chief financial officer, Thomas E. Prince.
Prince declined to comment. The others couldn’t be reached.
In a 1995 interview at his home in Bullhead City, Ariz., Mcalister complained to The Times that regulatory overkill was preventing small banks and thrifts from fulfilling their key roles as lenders to small businesses and home builders.
“Today, it’s almost impossible for young people to get started with a bank or thrift loan,” he said. Lending “is a very simple business, but it’s become so complicated with government regulations.”
Downey, originally based in the town of that name and later in Newport Beach, had a branch network in California and Arizona.
US Bank took over its deposits and its loan portfolio under a loss-sharing agreement with the FDIC. The federal agency initially estimated that Downey’s failure would cost its deposit-insurance fund $1.4 billion, but the loss was revised in late 2010 to $407.2 million.
The FDIC, which filed negligence lawsuits against executives of many failed banks, never sued the Downey executives before the statute of limitations ran out late last year.
Former investors in Downey filed securities fraud and racketeering lawsuits against McAlister, Rosenthal and other defendants, but federal court records show they were dismissed. The attorney representing the executives in those cases, Dan Marmalefsky, did not respond Friday to requests for comment.