The TBW Fiasco: Is It a Disaster or A Real Opportunity?
There's two ways to look at the collapse of Taylor, Bean & Whitaker, the nation's fourth largest wholesaler: it's a disaster for the already hard-hit loan brokerage industry or it offers a real opportunity for midsized wholesalers to gain market share and move up in the ranks. Ah, if only it were that simple.
Indeed, when giants disappear opportunities can abound but the wholesale/broker channel isn't exactly a robust sector of the mortgage industry. Table funding accounts for just 15% of all loans funded these days compared to 30% two years ago. (Figures courtesy of our Quarterly Data Report product.) And to be frank, the mortgage industry itself is still trying to figure out whether it's immediate future is bright or whether that's just the light of a locomotive streaming from a dark tunnel. (We keep hearing that profit margins on new originations are strong - thanks to a lack of competition.)
During the first half of 2009, Ocala, Fla.-based TBW table funded about $10 billion in home mortgages. In theory that volume could - the operative word here being "could" - be picked up by other players. But who? Provident Funding Associates of California, which is now the nation's largest table funder, is a non-bank, as is TBW.
Non-banks, as we all know, only exist if there's a bank or thrift willing to provide warehouse credit - which brings us back to TBW. TBW had hoped to lead a group of mostly mortgage bankers that was willing to pump $300 million into Colonial Bancshares of Alabama, the nation's largest warehouse lender. But, as we all now know, Colonial is (more or less) a ward of the government and TBW's plan to recapitalize the bank went up in smoke after the bank posted a huge loss and the Department of Housing and Urban Development yanked TBW's ability to fund FHA loans. Colonial was (of course) TBW's largest warehouse lender.
If all this sounds like a complicated mess, it's because it is. Let's recap: one of the nation's largest non-banks (TBW) planned to rescue the nation's largest warehouse provider (Colonial) using money it raised from other non-banks. It also appears that TBW had borrowed against its servicing rights to raise some of the $100 million it had pledged to the deal. The money-losing Colonial - with TBW's money in hand - also had hoped to secure $550 million in TARP funds. All these dreams existed before we knew about pending (though not unexpected) large losses at Colonial, and TBW's suspension by FHA, which forced it to throw its wholesale division overboard.
Where does this leave us? Well, for starters, it leaves us without the nation's largest warehouse provider (Colonial) and without the nation's fourth largest wholesaler (TBW). I ask again: Does this spell opportunity for other players or a void that no one is willing to fill?
I recently asked Marc Savitt, former president of the National Association of Mortgage Brokers, whether he felt TBW's demise would be the final death knell for brokers. "The void will be filled not by one, but by many," he said, sounding somewhat sanguine. "But it will be absorbed." His brokerage shop in West Virginia is still humming along, funding $3 million or so a month. He's not ready to buy into Trump Tower but he's making a living, which is more than can be said about the unfortunate full-timers who lost their jobs at TBW's production division.
One footnote to this story: even though TBW ceased funding new loans, it remains as a servicer. (See related story in this issue.) For now, its executives aren't saying much in regard to its future but one thing is certain: as of this writing it was a buyer's market for "bulk" mortgage servicing rights and TBW is the bird, not the cat.
Paul Muolo is executive editor of both MSN and National Mortgage News. He can be e-mailed at Paul.Muolo@SourceMedia.com.