FDIC in mess over subprime loans-WSJ

July 21 Mon Jul 21, 2008 6:17am BST

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July 21 (Reuters) - The Federal Deposit Insurance Corp, a regulator of U.S. banks, is itself embroiled in a mess related to subprime mortgages, the Wall Street Journal said on Monday, citing court documents.

The U.S. government gave out high-interest, subprime mortgages, according to government documents filed in federal court, the newspaper said.

The Journal said federal officials seized Superior Bank FSB, a national subprime lender based in Illinois, in 2001, and the FDIC continued to run the bank's subprime-mortgage business for months as it looked for a buyer.

Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data, the newspaper said, and the FDIC sold a big chunk of the loans to another bank.

The Journal also said Texas-based Beal Bank SSB bought a portfolio of Superior loans, about half of which originated under the FDIC.

Beal sued FDIC in 2002 and is seeking to recover damages arising from the regulator's alleged breaches of contract regarding subprime mortgage portfolios the bank bought from it, according to court documents.

Beal said in an amended complaint filed in U.S. District Court for the District of Columbia last year that it paid the regulator nearly $340 million to buy 5,315 home mortgage loans subject to the regulators representations and warranties.

The FDIC recently took over mortgage lender IndyMac IDMC.PK after withdrawals by depositors led to the bank's failure. (Reporting by Varsha Tickoo in Bangalore and Paritosh Bansal in New York)

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