Some rumblings in the mortgage industry
Colonial Bank in Montgomery, Alabama (and the money behind Auburn) was removed from the Smallcap index last week as its net worth fell to a little over $200 million (Its share price is around a dollar a share):
"Standard & Poor’s removed Colonial BancGroup Inc. from its S&P SmallCap 400 Index, which tracks a diverse group of medium-sized firms across the nation." story
Why is JJ tracking Colonial's fortunes? Colonial is the largest issuer of credit lines to mortgage lenders that do not service their own loans. A Colonial collapse would be huge as billions in credit lines for major mortgage lenders (such as Taylor, Bean, & Whitaker) would be jeopardized. Its the credit lines that allow lenders to fund loans and then sell them to servicers. Just think Realty Mortgage.
However, there is more trouble on the horizon as Citi announced today it will not be taking loan applications from lenders for 8 days:
"A spokesperson confirmed to HousingWire the company entered the temporary suspension over “quality control” issues surrounding documentation of appraisals or income verification seen in — or missing entirely from — previous mortgages purchased through the channel. Lenders like Citi purchase mortgage loans originated by independent mortgage bankers through correspondent channels." story
Citi is one of the few remaining servicers for mortgage lending. Most lenders sell their paper to Bank of America, Citi, Wells Fargo, GMAC, and Chase (Chase only buys from retail operations such as banks). While many banks such as Trustmark and Regions service their own loans, many other lenders such as Community Bank or Copiah Bank don't service mortgages but instead sell them to some of the aforementioned servicers (They don't use Citi, I used them as local examples.).
If a major servicer and buyer of mortgage paper such as Citi stops accepting loan applications, this will cause somewhat of a freezing of the mortgage industry as many lenders suddenly find themselves looking for other servicers. One can also expect other lenders that do not have such a problem will face some strain as their capacity is burdened by the increased demand.
5 comments:
It wasn't delisted, it was removed from the Smallcap 400. Big difference.
As for your Mexican restaurant poll, we recently went to La Cazuela and had a roach in a glass of water served to us!
UGHHHHHH
I know the difference. Don't know why I wrote it like that and I will change it.
The prospect of this (a Colonial failure) makes me queasy. If we think the economy's struggling to recover now, wait until the housing market takes THIS hit.
When Chase closed shut off correspondent lending for all but large retail operations such as banks, it forced many lenders out of business within a few weeks. See Realty Mortgage. Of course, Realty had a problem with sloppy underwriting as well.
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