Major Mortgage Bank Folds Up

This is a bit bizarre and there’s probably a lot more to it than appears on the surface.

The WSJ is reporting that Taylor, Bean & Whitaker, the 12ht largest mortgage company in the US, has announced that it is immediately terminating its mortgage lending business.

Taylor, Bean & Whitaker Mortgage Corp. announced that it has closed down its mortgage-lending operations.

The privately owned Ocala, Fla.-based mortgage bank cited Tuesday’s move by the Federal Housing Administration barring it from making loans insured by the FHA. It also disclosed that it can no longer sell loans to Freddie Mac, the government-backed mortgage investor that has purchased a large share of Taylor Bean’s production in recent years.

The Department of Housing and Urban Development, which oversees the FHA, said it took action against Taylor Bean because the company failed to submit a required annual financial report and to disclose “certain irregular transactions that raised concerns of fraud.”

Taylor Bean was the nation’s 12th-largest home-mortgage lender in this year’s first half, according to Inside Mortgage Finance, a trade publication. Taylor Bean did most of its lending through brokers and smaller mortgage banks and was one of the last big mortgage originators that isn’t part of a giant commercial banking company.

Its closing is a blow to hundreds of brokers and small mortgage banks that sold their loans to Taylor Bean and now will have to scramble to find new partners.

As detailed in an earlier WSJ article, Taylor, Bean’s offices along with those of Colonial BancGroup were raided on Monday by federal officials. Colonial is a troubled bank that a group of investors led by Taylor, Bean had been trying to recapitalize in order to secure TARP funds for Colonial. That effort fell apart on Friday when Colonial released dismal Q2 results.

Colonial is one of the few warehouse lenders that still lend aggressively to smaller mortgage companies and Taylor, Bean was one of their biggest customers. Taylor, Bean in turn acted as a buyer of mortgage loans originated by smaller mortgage bankers and brokers. The collapse of the chain means that a lot of buyers are going to be scrambling to replace loan commitments that aren’t going to fund through Taylor, Bean.

This is pure speculation but the feds have been bringing more actions against mortgage companies and others in the real estate sector that were involved in fraudulent transactions during the bubble. It is possible that some mortgage fraud, possibly of significant size, has been uncovered that involves Taylor, Bean and Colonial. If that’s the case then it could work back down the line to the smaller mortgage outfits that were selling to Taylor, Bean.

If all of that works out to be somewhat the case, then you could see a lot of individuals and companies pulled into the whirlpool. The FBI may be late to the party but they’re pretty good at getting perps to rat out others in order to save some of their own skin. It could get interesting.

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