By Sophia Pearson – Aug 24, 2011 9:45 AM ET
Ex-First National Bank of Arizona Chief Executive Officer Gary A. Dorris and former director Philip A. Lamb “sacrificed safety” and promoted risky nontraditional mortgage loans that ultimately caused the bank’s failure, the Federal Deposit Insurance Corp. said in a lawsuit.
Dorris and Lamb were negligent in exercising their duties, given the obvious risks of the bank’s business model, the agency said yesterday in a complaint in federal court in Phoenix.
The bank operated a wholesale mortgage division to purchase and market nontraditional “Alt-A” loans that lacked proper underwriting, required no verification of borrowers’ income or assets, and had terms that guaranteed high default rates, the FDIC alleged.
“Although these risky loans returned record profits in the near term, they produced losses once the real estate market softened, and ultimately caused the bank’s failure,” the agency said in the complaint, which seeks to recover more than $193 million in damages.
FNB Arizona closed its wholesale mortgage business in 2007, terminating more than 500 people. It was acquired by First National Bank of Nevada in June 2008, less than a month before that bank was shuttered on July 25, the FDIC said in the complaint.
A woman who answered the phone at Dorris’s home in Scottsdale, Arizona, said he was unavailable. Lamb has no public phone listing and couldn’t immediately be reached for comment.
The case is Federal Deposit Insurance Corp. v. Dorris, 2:11-cv-01652, U.S. District Court, District of Arizona (Phoenix).
To contact the reporter on this story: Sophia Pearson in Philadelphia at spearson3@bloomberg.net.
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.
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