UPDATE: Colonial BancGroup, Taylor Bean and Freddie Mac-who could have seen this coming?
| Image by https://www.taylorbean.com/default.aspx
Aug. 7: Colonial BancGroup announces governmental actions. Seems that on “August 6, 2009, it was informed by the U.S. Department of Justice that it is the target of a federal criminal investigation relating to the Company’s mortgage warehouse lending division and related alleged accounting irregularities.”
On August 5, 2009, the Alabama State Banking Department provided notice to Colonial Bank that the Alabama State Banking Board will meet on August 12, 2009, at which time Colonial Bank will be asked to consent to the Superintendent’s exercise of his statutory authority to appoint the FDIC as receiver or conservator for the Bank if and when the Superintendent deems such appointment to be necessary.
Any bets on when that might be necessary? I got Aug. 13.
To recap: Colonial Bank supplied much of the money lent by Taylor Bean & Whitaker, which then serviced the loans and/or sold them to Freddie Mac, one of the two big government-backed mortgage companies. So some of the loans stayed on Colonial’s balance sheet, and now Colonial is doomed. So, you ask, what about those loans Freddie bought?
On August 4, 2009, we notified Taylor, Bean & Whitaker Mortgage Corp., or TBW, that we had terminated its eligibility, for cause, as a seller and servicer for us effective immediately. TBW accounted for approximately 5.2% and 2.7% of our single-family mortgage purchase volume activity for full-year 2008 and the six months ended June 30, 2009, respectively. We are in the process of determining our total exposure to TBW in the event it cannot perform its contractual obligations to us. The amount of our losses in such event could be significant.
On a historical note, TBW was Freddie’s fifth largest securities issuer, with a tight relationship to the GSE. My favorite is this May 2008 press release claiming (and I quote), “Freddie Mac recognized TB&W in a public ceremony last week as their number one lender in affordable housing products, which is consistent with our commitment to help all borrowers realize the dream of homeownership.”
Reminder: The above is what neighborhood lending like this leads to.