NEW YORK (CNNMoney.com) — The potential 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., is 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. If Colonial fails, those funds become even more scarce.
"It’s like if they shut down half the concession stands at the baseball game," said Scott Stern, CEO of the Lenders One mortgage bankers group in St. Louis. "It means the guy who’s last in line is going to have to wait a lot longer to get a hot dog, and in this market who knows what the price is going to be when he gets there?"
WASHINGTON (AP) — Regulators on Friday shut down Colonial BancGroup Inc., a lender in real estate development, in the biggest U.S. bank failure this year, and also closed four banks in Arizona, Nevada and Pennsylvania.
They must be busy at the FDIC these days. Shutting down banks has become one of the few "growth industries" out there in this economy.