More Details on Westsound Bank’s Problem

Westsound Bank’s troubles with federal and state regulators may stem from high-end residential construction loans one or two former bank employees oversaw, according to the transcript of a conversation with the bank’s president, Dave Johnson.

The discussion was the third-quarter conference call Johnson made as CEO of WSB Financial Group, the bank’s holding company. The conversation took place on Oct. 29.

I tried to listen to the call live that day, but was denied access.

The short story is that Westsound gave out construction loans intended for people who planned to live in the homes they’re building. The loans, though, required only that the borrower state an income, not provide any proof. Westsound offered the loans because Countrywide Financial Group was there as a secondary market, so Westsound could sell the loans.

State regulators got nervous about the lack of income proof, then Countrywide pulled the program. Westsound looked closer at the loans, met with borrowers and looked at the projects and determined the borrowers’ ability to get permanent financing was less certain than the borrowers had said.

Johnson said:

“While the borrowers indicated that their intentions were to live in the homes once they were completed, on closer review, we felt that it was unlikely, in many cases, that the borrowers could service the long-term loans on the properties and that these loans were really more of a speculative situation where they would sell the home as quickly as possible.”

He said there were about 135 borrowers given 146 loans (so at least 11 of those loans were the second or third loans), averaging about $616,000 per home for a total of $90 million.

As for fraud, Johnson said the investigation centers on one or two former bank employees and third parties.

You can read the conference transcript (a PDF file) by clicking here.

8 thoughts on “More Details on Westsound Bank’s Problem

  1. Greed…it seems…from the people buying on speculation of a fast profit to the officers at the bank.

    Well those folks can get second and third jobs to pay off the money they owe… it should have nothing to do with taxpayers.

    The greed ‘blame’ stretches from the top of the food chain to the bottom.
    They gambled. They lost.
    They owe a debt and should pay it and/or go to jail.

    This conference call is one of the funniest things I’ve read in years. A song and dance between ‘David’ and the polite questioners asking mostly clear, reasonable questions.

    ‘David’ left no doubt he successfully graduated from the latest and most successful Politician School of ‘Talk A Lot – Say Nothing’..

    He talked around the questions until they were lost in mush.

    The only way the reader gains any information is by the good questions asked.

    In my opinion… Sharon O’Hara

  2. OneBadMan,

    You are correct that the KPBJ had this story way before we did. On Nov. 1 the following quote appears in a story:

    “On Oct. 26, a conference call for investors took place, and while the media was specifically barred from participating in that call, the Business Journal did have the opportunity to listen in.”

    I was one of those barred from listening in. So why was the KPBJ allowed to listen in and file a story (which did not include a byline)? I have my hunches, but I’d like to check it out further before posting anything here.

  3. Where is the local outrage on this investor scam? This bank was built with investments from the local community, and as such the locals had the most to loose. There is no question this banks failure was caused by greed and lack of oversight by managemnt. Why isn’t the sun writing stories about the pending litigation? Why are there no stories from investors asking for heads to roll? Why did the Sun not cover this story early on? Are we seeing the good ole boy system at work on this one? There is a much bigger story here than the one we are being told, and I think it starts right at the top with a huge cover up.

  4. Maybe no investors have asked for heads to roll… and plan to sue…or still hoping to get their money back.

    Who are the investors? We can ask them.

    Someone else made the point that innocent employees are hurt through this and most likely will lose their jobs.
    Thats the problem with greed…it takes down the innocent as well as the people who see others making lots of money and decide to risk it all to buy homes hoping for a quick turn a round. A risky gamble – a great learning experience for the future..

    Just like horse races … it takes a lot of hopefuls losing to support the few winning the race.

    ….if something sounds too good to be true…it probably is.
    In my opinion… Sharon O’Hara

  5. There is a lesson here. Absolutely KNOW with whom you are investing your money.
    I learned it the hard way back in 1972, when I invested in (local, to me, then) bank.
    I hope that the younger generation can learn it the easy way.

  6. Another lesson of awareness…why should anyone be charged over 3,500% interest for a one day use of $4 34.39?

    Yesterday, checking a statement , I noticed a company had apparently gotten my last check for the balance one day late and added a $39.00 “Late payment fee” to the current $21.15 balance.

    Their $39.00 charge for a one day use of the money ($434.39) means they charged over 3,500% interest.
    Whoa now – what is that about?

    How can any company charge over 3,500% for a one day use of $434.39?
    Curious … Sharon O’Hara

  7. Well… after a dozen or so emails and numerous phone calls ALL suggested I should be embarrassed for being so wrong.

    …I’m unembarrassed and apologizing.
    That said, being charged $39.00 interest on only $434.39 for one day’s use seems outrageous.

    (The store did remove the charge after a phone call…but…)

    What am I not seeing here?
    Thank you… Sharon O’Hara

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