Regulators unveil enforcement action against failed Henderson bank

Federal bank regulators Friday revealed a second enforcement action alleging reckless, unsafe and unsound banking practices at the failed Silver State Bank of Henderson.

The Federal Deposit Insurance Corp. made public a complaint against former bank officer Steven D. Haynes in which it proposes to fine him $75,000 and bar him from working for any insured depository institution, i.e. most banks.

The FDIC charged that Haynes breached his fiduciary duties as an officer of the bank in approving poor quality home construction loans, earning about $11,000 in improper loan fee commissions, and this caused the bank and the FDIC as receiver a loss of more than $2.6 million.

The FDIC said Haynes was a lending officer at the bank beginning in 2001 and later worked as a supervisor of junior loan officers and as branch manager of the Pebble Market office until the bank failed on Sept. 5, 2008.

The failure of Silver State, with loans and other assets of about $1.9 billion and 17 branches in Nevada and Arizona, was expected to cost the FDIC more than $450 million.

Problems with 18 of the home construction loans Haynes approved included him failing to verify or document the borrowers’ financial conditions, net worth, incomes and/or employment to determine their creditworthiness, the FDIC said.

"The borrowers’ actual incomes and net worth were in fact inadequate for the borrowers to obtain permanent financing of the construction loan or to otherwise repay the loan," the complaint said. "Haynes’s failure to determine the borrowers’ creditworthiness and risk they posed to the bank was a significant factor in the ultimate loss sustained, or to be sustained, in connection with these loans."

The FDIC complaint focused on loans for Utah homes involving Greystone Financial Group of Las Vegas; and Humarock Mortgage LLC and its owner Kent Allred of Draper, Utah, who provided third-party mortgage origination for Greystone.

"Beginning in approximately 2006, at least 30 individuals were recruited by Allred and his business associates to participate in an investment property scheme in Utah. The individuals were told if they had good credit scores, those scores could be used to qualify them for a construction loan to build a house that could be flipped after completion for a significant profit, and that they did not have to invest any of their personal funds into the properties," the FDIC complaint said.

After several Utah banks declined to fund construction loans for the homes subject to residential mortgages Allred was trying to arrange, Silver State Bank approved them at the request of Greystone, the FDIC said.

These were "stated-income" construction loans, sometimes called "liar loans," since the income claims were not verified.

Between August 2006 and May 2007, Greystone provided 30 potential borrower packets to Haynes that generally included an "unsigned Uniform Residential Loan Application containing unverified information and, in some cases, no income information at all, a verbal verification that the borrower was employed, and a credit report," the FDIC said.

They "also typically included information such as an appraisal of the 'as completed’ value of the house, a breakdown of construction costs, information on the builder and a mortgage loan commitment," the FDIC said.

Greystone earned about $600,000 in referral fees at about $20,000 per loan, with the fees paid from the construction loan proceeds, the FDIC said.

Haynes personally approved 29 of the 30 loans as they were within his discretion giving him authority to lend up to $750,000 without approval by supervisors, the FDIC said.

Of the 29 loans, 18 went into default, causing the $2.6 million loss, the FDIC said. These loans ranged from $368,000 to $520,000, the FDIC said.

Haynes, who couldn’t immediately be located for comment, will have a chance to contest the FDIC’s proposed sanction and fine.

The complaint against him unveiled Friday follows one made public in January against former Silver State official Douglas French.

That complaint remains active, an FDIC spokeswoman said Friday.

French has denied the allegations that his unsound lending decisions cost the bank some $10 million in losses.

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