Colonial, Taylor Bean Woes Impact ABCP, RMBS Deals

The misfortunes of Taylor, Bean & Whitaker Mortgage Corp. (TBW) and its warehouse lender Colonial Bank dragged Ocala Funding’s asset-backed commercial paper (ABCP) program into the “vortex” of financial woes, according to commentary Monday by Moody’s Investors Service. Colonial bank served as bailee for Ocala collateral, but the Federal Deposit Insurance Corp. acting as Colonial’s receiver after the bank failed has yet to release Ocala collateral, putting repayment of Ocala notes in jeopardy, Moody’s said. Ocala acts as an ABCP conduit that provides warehouse funding for residential mortgages originated by TBW. Bank of America (BAC) serves as trustee and administrator of the transactions under the $1.75bn program. As custodian, BofA appointed as its bailee Colonial, which delivered almost 8,000 loans to Freddie Mac (FRE). The GSE paid $1bn for most of the loans. Then Colonial and TBW began a period of “rapid deterioration” and were soon essentially shut down by regulators. “BoA is now disputing $1bn of Ocala’s cash and mortgages at Colonial with the FDIC,” Moody’s said. “It is unclear how and when this will be settled and when payment on the Ocala notes will be made.” TBW filed for relief under Chapter 11 bankruptcy following moves by the Federal Housing Administration and Ginnie Mae to prohibit TBW from originating new FHA-insured mortgages or Ginnie securities. While TBW primarily originated loans for Ginnie securities, which are backed by the full faith and credit of the US government, Moody’s rates six deals backed by TBW’s Alt-A loans. Moody’s said it placed 50 bonds on review for possible downgrade. Some of these bonds bear high credit support — as much as 80% in some cases — although Moody’s noted non-payment of interest and principal drives uncertainty of future recoveries. The bonds backed by these transactions received no interest or principal payments during the August payment cycle, since regulators froze TBW’s collection accounts. Wells Fargo Bank, acting as Master Servicer, received no remittance from these accounts on the expected date of August 18. Wells is working with TBW and regulators to lift the freeze from the collection accounts and distribute collections to investors, although Moody’s said it remains uncertain whether the freeze will lift. “At the same time, Wells Fargo is also working to organize a transfer of servicing in order to safeguard future cash flows,” Moody’s noted. “Wells Fargo Bank terminated TBW as servicer following an event of default unrelated to TBW’s solvency on August 12. Since TBW later filed for bankruptcy, the termination has been stayed by the bankruptcy court.” Moody’s added: “The bank is petitioning the court to lift the stay and, if successful, intends to initially transfer the servicing to American Home Mortgage Servicing, Inc., which has experience in servicing similar collateral.” Write to Diana Golobay.