This case takes place in Pennsylvania and involves the evaluation of loans by a national bank which was closed by the Office of the Comptroller of the Currency (OCC). The central issue in this case involves “Other Real Estate Owned” (OREO) assets were due to bad lending practices or due to the general downturn and subprime mortgage market. In essence, an evaluation of lending practices and, in particular to redevelopment affordable housing construction, must be done. The core of the analysis will be to determine, out of roughly $10mn in loans, what proportion was subject to the general economic downturn and should better lending criteria have been implemented and screened prior to extending these loans.
Question(s) For Expert Witness
- 1. Are you familiar with lending criteria for commercial banks?
- 2. Are you capable of providing a macro perspective on the general failures of commercial banks during the subprime mortgage crisis?
- 3. Could you opine, once informed of lending criteria by the bank, as to the proportion of OREO which was due to lending practices as opposed to the general economy?
- 4. What makes you qualified to serve as an expert on this case?
Expert Witness Response E-018278
My area of expertise as an academic lies in the areas of mortgage default, foreclosure, and analysis. I have conducted research looking at mortgage underwriting (both residential and commercial) and teach a class on real estate finance that includes mortgage underwriting specifically as one of the topics/concepts. I have also conducted several research projects related to the subprime mortgage crisis and thus am familiar with current research on the crisis, including the extent that financial institutions may have contributed to the crisis. My research also focuses on modeling mortgage default (both residential and commercial). Such a model would be critical to assessing whether loans originated by the bank performed poorly due to underwriting or as a result of the general economy. Basically, such an analysis would require estimating a default model using data from the time of origination and then simulating the economic environment to determine the extent that observed defaults were greater than that predicted by the bank’s underwriting criteria.
Expert Witness Response E-009316
I am highly knowledgeable about the lending criteria for commercial banks. As a National Bank Examiner and Federal Thrift Regulator I have reviewed and classified hundreds of loans and looked at and valued hundreds pieces of OREO. In fact, I am currently involved with a case now in which this type of experience is needed. I have worked with RTC in managing a case of problem loans/assets a and as a Special Deputy Receiver for the Texas Department of Insurance in valuing real estate assets. I have also worked with the OCC as a National Bank Examiner and OTS as a Federal Thrift Regulator.