Why the death of a lender matters
Earlier this evening, Reuters’ Jon Stempel reported that Taylor, Bean & Whitaker has ceased lending. That makes TBW #351 on the Mortgage Lender Implode-o-Meter. Questions swirl about what happened. One possibility seems to be that the company just couldn’t manage its own growth. As other lenders disappeared and TBW’s FHA business exploded, it’s possible they just didn’t have sufficient internal controls to insure loans met FHA underwriting standards. When the company failed to file its annual financials with the government, things started to unravel.
It’s not clear how problems at Colonial Bank may have impacted the situation. TBW was basically dependent on Colonial for all its funding. The company tried to buy Colonial, injecting $300m of capital in order to make the latter eligible for $550m of TARP funds. That would have kept the gravy train going. But the deal fell apart late last week when Colonial reported dismal results while issuing a going concern warning.
Why should you care? Because TBW is pretty big. It was the third largest originator of FHA mortgages in the market. Recently the company was doing $100m-$150m of loans a day, according to a source. It takes time for loan applications to be approved and funded. 45-60 days I’m told.
If TBW was doing, say, 500 home loans a day, as many as 30,000 transactions may be imperiled by the company’s failure. A lot of paperwork will have to be re-filed, new appraisals will have to be ordered, etc. The housing market won’t fall apart by any means, but this will certainly cause a fair amount of indigestion. And a lot of mortgage brokers that were dependent on TBW to purchase the loans they originated are now in deep trouble.
BofA could be a big winner here. Apparently they’re going to end up taking on TBW’s serving duties.