TBW: Bank of America's New Scarlet Letter?

Do we really need to comment?

There is not really much to do but speculate at this point so we're going to go ahead and say what everyone else is reluctant to say, shall we?

First the tale from NYT:

The Federal Housing Administration, the government mortgage insurer, suspended Taylor Bean on Wednesday, citing possible fraud. The company did not submit a required annual financial report and “misrepresented that there were no unresolved issues with its independent auditor,” the agency said.

The auditor discovered “irregular transactions that raised concerns of fraud,” the F.H.A. said. The agency’s decision follows a failed attempt by Taylor Bean to lead an investor group that would have paid $300 million for control of Colonial BancGroup.

Lenders that relied on Taylor Bean for financing will suffer from the company’s closing, said David Olson, president of the mortgage research firm Wholesale Access in Columbia, Md.

“The market is extremely tight, and now more business will go to the guys at the top,” Mr. Olson said in an interview, referring to the biggest lenders like Bank of America and Wells Fargo. “It’s another disaster for wholesale lending.”

Taylor Bean, based in Florida, said it was cooperating with federal agencies “and expected to continue to service mortgage loans as it restructures its business in the wake of these events.”

Taylor Bean ranked 12th among mortgage originators in the United States in the first half of this year with $17 billion of loans, or 1.7 percent of the total, according to industry newsletter Inside Mortgage Finance.

Now, JP Morgan analysts have been kind enough to sum up the situation as well:

On Tuesday, the FHA announced that it had suspended Taylor, Bean and Whitaker Mortgage Corporation (TBW) and thus stripped TBW of the ability to originate and underwrite FHA-insured mortgages. Ginnie Mae also declared TBW to be in default, and both terminated TBW’s issuer status and took control of TBW’s Ginnie Mae portfolio. As we discuss below, we expect buyout-related speeds on TBW pools to soar after several months, and this could have a material impact on Ginnie premiums, since these pools will constitute a reasonable percentage of the TBA float that is actively traded. We recommend selling GN/FN 6 and 6.5 in particular based on this news, and buying Ginnie IIs over Is.

Overall, TBW loans constitute around $24bn, or 3%, of outstanding Ginnie Mae fixed rate securities, making TBW the eighth largest Ginnie Mae issuer. As a share of overall GNMA issuance, TBW’s production peaked at 10% in 2007 and has since fallen to only 2 3%. There are a few cohorts with a sizeable proportion (15% of the ‘07 6.5s) of TBW securities, but these cohorts are generally small.

Bank of America is supposed to take over servicing duties. Ginnie strives to make the servicing transfer as seamless as possible; however, operational disruptions are probably inevitable. One would expect that this transfer should affect refinancing and loss mitigation efforts in their current pipelines, leading to near term declines in voluntary speeds on pools serviced by TBW.

Yes well, we've seen how TBW is handling the frozen pipeline, haven't we? How are those wire delays going?

Listen, it doesn't take a genius to figure this out. TBW was, by all reports, an above the board institution. Now SIGTARP swoops in, takes out Colonial and TBW with it (somehow the details on their seedy little relationship are a little foggy except for the part where Deutsche Bank said it would be a good idea to take a $300 million stake in Colonial until TBW backed out at the last minute, that part we pretty much have pretty straight) and suddenly Bank of America will somehow rescue TBW's operations?

Call me a conspiracy theorist if you want but man oh man Ken Lewis really should have kept his trap shut. You won't make our loan mods so we'll make you make them!

It's a tad far-fetched. Or is it? It would be in normal circumstances. In Bizarro World, however, logic doesn't count and everything appears to be fair game. Anyone else get the feeling this is a hostile government takeover?

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


the mortgage industry is now completely controlled by the government through the agency lenders. It will be very interesting to find out exactly why Taylor Bean collapsed. The bottom line is that the mortgage industry is now dominated by the major banks; smaller lenders can no longer compete due to onerous regulatory changes which only a very large organization can handle. A mortgage borrower is well advised to only apply with one of the major mega mortgage lenders. As customers of Taylor Bean found out this week, the risk of dealing with a smaller player can result in disastrous consequences.