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Community Comment

Sterling Savings Bank … more to the story

Good morning, Netizens…


The local news media is absolutely astir over the situation involving Sterling Financial Corporation. It all started late Wednesday when the Federal Deposit Insurance Corp and the Washington Department of Financial Institutions served them with a cease-and-desist order, and Chairman Harold Gilkey and Heidi Stanley, chairwoman of the subsidiary Sterling Savings Bank both submitted their resignations effective immediately. The board of directors named Director William Eisenhart as acting, nonexecutive chairman. J. Gregory Seibly was named acting president and chief executive officer, and Ezra Eckhardt was named acting chief operating officer.


It goes without saying that Sterling, with $12.4 billion in assets, is the largest bank based in Washington State.


However, this change of management is only the symptom of the current changes taking place. The underlying problem with Sterling, as well several other banks in the Spokane marketplace, is one of the appraised values determined by real estate appraisers which in retrospect, were substantially higher than the true market value of the real estate. In other words, people were borrowing more money, based upon high appraisal values, than the property was worth.


So, in the world of speculative real estate values, the appraisal firm(s) and the rules under which they operate (http://www.appraisalinstitute.org/) bear nearly as much responsibility as the bank itself, for having contributed to this snafu of unimaginable proportions.


When you examine the appraised values, on which Sterling loaned money, in a predominate percentage of the time Auble, Jolicoeur and Gentry (http://www.auble.com/), one of Spokane’s largest appraisal firms, played an important role since they wrote a substantial percentage of the damaged appraisals.


Hardly anyone outside the realm of real estate openly speaks much about appraisals, especially after legal action has taken place against several lenders in the Spokane region.


The regulators are demanding that Sterling raise $300 million dollars within the next sixty days. Although the newly-coined bank representatives appear publicly optimistic, it remains to be seen if the bank can raise that amount of capital.


According to the Puget Sound Business Journal and Foresight Analytics of Oakland, Calif., “Washington went from doing better to now doing as badly as many areas around the country.”


We have already seen the impact that has had on other states.


Dave


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