Sunday, August 16, 2009

Another major mortgage provider goes belly up

A major bank seizure occurred this weekend:
Troubled Colonial BancGroup will be bought by rival BB&T Friday, the government said after state regulators closed the bank whose assets had been frozen by a federal judge.

The Montgomery, Ala., bank, which has 346 branches spread across Florida, Alabama, Georgia, Nevada, and Texas, is the sixth largest bank failure in U.S. history and by far the largest failure of 2009.

With $25 billion in assets and $20 billion in deposits, Colonial is 100 times larger than the typical bank to have failed this year. ...

The failure of Colonial is another blow to the FDIC trust fund, which has had to cover 77 bank failures so far in 2009 — including four more late Friday.
How this could affect the mortgage market:
The collapse of Colonial BancGroup poses another hazard to the still-shaky housing market: Mortgages could become even harder to get.

The Southern regional bank, based in Montgomery, Ala., was the largest remaining player in warehouse lending, which provides short-term financing to independent mortgage bankers. At one time, these mortgage bankers originated half of all U.S. home loans using these funds.

Today, the warehouse lending market is decimated. In 2007 it was worth an estimated $200 billion; now there is just $25 billion available — 25% of which belongs to Colonial. With Colonial's failure, those funds could become even more scarce.

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