Another troubling sign was that loan officers at the satellite offices were paid to find borrowers and execute loans, but bore no consequences if those loans went bad. It was a formula for disaster, Ward said - a new and riskier line of business with inadequate controls.
Investigators raised concerns, Ward said, only to find in subsequent examinations that Suburban had broadened its risky lending into land and construction loans.
"Most of the time, institutions take some corrective actions that have been identified by the examiners," said Ward. "In this case, they expanded their new activity."
FOR THE RECORD - An article Sunday about the collapse of Suburban Federal Savings Bank erroneously included a photo on News page 12 of an Ellicott City home that had no involvement with the failed bank.
THE BALTIMORE SUN REGRETS THE ERROR
One of the earlier no-documentation loans Suburban offered under its new programs was made to Burrow.
Court papers say that in April 2005, Burrow was constructing "a palatial, seven bedroom residential home on over five acres of property with amenities including a movie theater, recording studio, gym, and media room." Suburban agreed to refinance his existing $872,000 mortgage and give him $389,000 more to finish building. Two months later, Burrow settled a loan for $1.3 million, bringing in $41,000 in points and fees to the bank and the mortgage broker.
In a lawsuit filed late last year, Burrow says Suburban misled him about the terms of the deal, a claim the bank's attorneys dispute. Burrow said he could only speak through his attorney, who declined to expound beyond documents filed in court.
Sidney P. Levin, a Baltimore-based broker who helped arrange the loan, said he wasn't involved in checking Burrow's credit or determining whether he could afford the loan. That was Suburban's job, he said. "I just submit it to the banks, and they make up their own mind," said Levin. "Once those no-doc products came out, everyone was using them. The market was so good that's what everyone was selling."
What burned Suburban more than anything - not just on that deal, but on scores of loans - was that the value of houses and construction projects dropped when the real estate market cooled, often to less than the amount of the loan, Levin said. Burrow's house was once appraised for $3 million.
"As long the value is going up, it doesn't matter," Levin said.
Indeed, Ward and other regulators say Suburban might have endured its foray into no-documentation lending if the real estate market hadn't crashed. But as values dropped, the amount of bad debt on Suburban's books soared. With capital of around $30 million, Suburban could not afford to have many large loans go into default.
