The subprime mortgage crisis still haunts Virginia Brokerage

Current FDIC Chair Jelena McWilliams and Former FDIC Chair Sheila Bair (Getty, iStock)

If you thought the subprime crisis had been relegated to the history books, think again. As with cleaning up the glitter, most of the mess may be gone, but smudges continue to appear.

One such stain is Virginia-based Trustworthy Mortgage Corporation, which was anything but, according to the FDIC.

Sometime before 2008, the brokerage secured a mortgage for a borrower receiving $543 a month from Social Security. Yet Trustworthy incorrectly said the borrower was employed and earning 10 times that amount in order to secure the loan, according to the FDIC.

It was one of 35 allegedly faulty mortgages brokered by Trustworthy totaling nearly $4 million, which are being sued by the FDIC in California this week.

Reached for comment Friday by The real dealAaron Sun, director of Trustworthy Mortgage since 2018, said he had no idea the lawsuit existed.

“I don’t know exactly what’s going on,” he said. “It was before my time.”

The lawsuit has its roots in the collapse of Washington Mutual during the 2008 financial crisis.

WaMu funded Trustworthy Mortgage’s defaulted loans and sold them to RMBS trusts, with a Deutsche Bank subsidiary as trustee. Deutsche Bank claimed to have incurred losses due to the defective loans, according to the FDIC complaint. These losses were then passed on to the FDIC, which took over as receiver of WaMu in 2008.

In 2017, the FDIC paid Deutsche Bank more than $3 billion to settle the bank’s losses on WaMu-related RMBS loans. This became the FDIC’s loss, for which the agency says Trustworthy, pursuant to an agreement with WaMu, is now liable.

Trustworthy’s bad loans were just a drop in the ocean in the face of wider struggles facing WaMu, which had $11.6 billion in non-performing assets in September 2008 when it been closed by the Federal Savings Supervisory Office.

The lawsuit was filed near the end of a six-year statute of limitations on FDIC losses.