Sunday, August 9, 2009

Mortgage industry catastrophe looming?

Two disasters took place in the mortgage industry this week. Mortgage lender Taylor, Bean, & Whitaker ceased operations and Colonial Bank became the subject of a criminal investigation. TBW was the twelfth largest lender overall and the third largest in FHA originations. HUD suspended TBW Monday from selling or servicing FHA-insured mortgages. The Wall Street Journal reported HUD terminated its relationship with TBW because "Taylor Bean failed to submit a required annual financial report and to disclose to the FHA “certain irregular transactions that raised concerns of fraud.” Thousands of borrowers found themselves stranded at the closing table as loans that had closed but not funded became worthless paper. Purchases were delayed as desperate borrowes were forced to obtain financing from other lenders. These homebuyers will probably pay more money as they will have to pay for another appraisal, a different set of fees, and a different interest rate.

While the mortgage industry can survive the closure of TBW, it will have a more difficult time surviving the closure of Colonial Bank, which is currently under a criminal investigation by the federal government. The Montgomery, Alabama-based bank is the largest issuer of credit lines to mortgage lenders nationwide.

Many mortgage companies and lenders use credit lines (also called warehouse lines) to fund mortgages. After closing, the loan "sits" on their line of credit until it is sold to a servicer such as Citi or Well Fargo. Credit lines are the lifeblood of the mortgage industry as most mortgage lending would come to a screeching halt if they disappeared. Unfortunately for the mortgage industry, The New York Times reports the feds are investigating this very part of Colonial's operations:
"In a regulatory filing, the company said the Alabama State Banking Department might appoint the Federal Deposit Insurance Corporation as receiver or conservator for its banking unit after Aug. 12.
Earlier this week, the agency that investigates misuse of federal bailout money raided Colonial’s mortgage warehouse lending division in Orlando, Fla. The Securities and Exchange Commission also issued subpoenas to the company seeking disclosures related to its participation in the Troubled Asset Relief Program and its accounting for loan-loss reserves."

A seizure by FDIC would make Colonial the sixth-largest bank failure in American history. There are many lenders sitting on pins and needles right now. If the warehouse lending division ceased operations, these same lenders (many of which are small banks and local mortgage companies) will probably be forced out of business as Realty Mortgage was a few months ago when Bank of America cancelled its credit line. Some will say that is just an opportunity for competitors to grab market share. Such uninformed thinking ignores the fact that the resulting demand will completely overwhelm the markets capacity for underwriting, funding, and servicing mortgages. The surviving lenders don't care about market share when it takes 60 days to get a file underwritten and everyone is screaming at them for being so slow. Market share doesn't mean much when the lender's systems shut down because the demand to lock loans was twice its capacity, causing everything to crash.

What probably needs to happen is either the Fed, Fannie, or Freddie needs to prepare to start issuing lines of credit to qualified lenders. Unfortunately, this means the Fed would be regulating non-depository institutions, which is very controversial. Keep your eyes on Colonial Bank for the next few weeks as its going to determine the fate of the mortgage industry.


Anonymous said...

Uh-oh! My mortgage is with TBW. I've not heard a word out of this is news to me. What should I do?

Kingfish said...

You are fine. Your mortgage is a contract so someone will own the rights to it. I think Bank of America is scooping up their paper.

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Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).

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Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.

In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

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Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.

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Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS