InterBank, a large and struggling Minnesota mortgage lender that grew rapidly during the housing boom, has been put on the auction block by federal regulators.
The Maple Grove-based thrift, which has four branches in the Twin Cities, must sell itself to another financial institution by June 30 if it is unable to raise more capital, according to an order issued last week by the Office of Thrift Supervision, a federal regulator.
InterBank, like other thrifts, specialized in first mortgages and home equity loans. It booked more than half of its $700 million in loans since 2000, when speculation and easy credit drove property values to record highs. That left it particularly vulnerable to the collapse in housing prices.
John Fletcher, InterBank's chief operating officer, said the 45-year-old thrift is discussing a possible sale or capital injection with "a number of interested parties," and a deal could come soon. "Our expectation is that we will be able to comply with the terms of the order," he said.
InterBank made nontraditional mortgage loans, including interest-only mortgages and so-called hybrid "ARMs," which offer an initial period at a fixed interest rate followed by a floating rate. InterBank kept many loans on its books rather than sell them on the secondary market to institutions like Fannie Mae. As foreclosures rose, losses on the mortgages wiped away much of InterBank's capital.
A year ago, InterBank appeared to have found a way out of its predicament when it announced plans to be acquired by a Virginia insurance company, Genworth Financial Inc. The deal fell through after the U.S. Treasury Department rejected Genworth's bid to become a savings and loan and thus become eligible for federal bailout money.
InterBank lost $16.3 million last year and $23.4 million in 2008. In November, the lender submitted a "capital restoration plan" to regulators, but the plan was not accepted.
The "prompt corrective action directive" issued last week is more serious than a typical enforcement action but does not mean the institution is about to be shut down. InterBank has until June 30 to become adequately capitalized or likely face tighter scrutiny by regulators.
"It's quite a short time horizon, but it's certainly conceivable that they could work their way out of this," said Matt Anderson, managing director at Foresight Analytics, a California financial research firm. "The credit markets have opened up and now there is more capital than there was a year ago."
Fletcher said InterBank's balance sheet has begun to stabilize. The thrift lost money in the fourth quarter, but not enough to reduce its capital it keeps on hand to absorb future losses. Interbank's capital levels have stayed the same for the past six months. The thrift has stopped booking new mortgages, and many of its bad mortgage loans have already been written off.
Chris Serres • 612-673-4308
