Colonial Bank failure will hit warehouse lending to mortgage brokers

[FarCenter]

Colonial Bank was one of the few still remaining in the business of providing lending to mortgage brokers. Mortgage brokers use these "warehouse" credit facilities to fund mortgages between closing and the time the mortgages are sold to investment banks or other institutions for securitization and sale lenders.

See for example, the news story "BB&T buys Colonial bank" http://money.cnn.com/2009/08/14/news/companies/colonial_bancgroup/?postversion=2009081418

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But home buyers and those who want to refinance their mortgages could end up paying somewhat higher rates, even if they have never heard of Colonial, said Guy Cecala, publisher of trade publication Inside Mortgage Finance.

Cecala said Colonial was a significant player in the sector of the business known as "mortgage warehouse" lending, which provides financing needed by mortgage brokers and non-bank lenders to make home loans.

"The more firms like this that get out, the more dependent we get on large banks, and less competition there is. That's never a good thing," he said. Warehouse lending used to be a huge source of funds for home loans, according to Cecala, but the mortgage defaults and declining home prices of recent years has decimated the business.

"The warehouse lending market is now so fragile and so small, it doesn't help when we lose anybody," he said. "We have only a cup of water where we used to have a bucket of water."
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[dixiegrrrrl]

1. For those who have asked: is the economy crash intentional...

I do believe the quote from the story says it all:

"The more firms like this that get out, the more dependent we get on large banks, and less competition there is."

It WAS the large banks that got the bailout, wasn't it?