Federal banking regulators blasted Taylor, Bean & Whitaker Mortgage Corp.'s "fundamentally flawed and ultimately meritless" bid to keep its mortgage-servicing business afloat by laying claim to accounts held at failed Colonial Bank.
The Federal Deposit Insurance Corp., the receiver for Alabama's recently shuttered Colonial Bank, says it — not Taylor Bean — has exclusive control over the bank's accounts. The mortgage lender maintained more than 100 accounts, holding about $1.9 billion, at Colonial.
"The Colonial Bank accounts over which [Taylor Bean] claims ownership in fact are escrow and custodial accounts created for the benefit of the borrowers — to pay taxes and insurance — and the investors — to pay principal and interest, and are not property of the bankruptcy estate," the FDIC said Wednesday in a bankruptcy court filing.
Taylor Bean, which filed for bankruptcy protection last month, serviced nearly 500,000 mortgage loans totaling more than $80 billion. The business involves collecting monthly mortgage payments and disbursing funds to investors.
The mortgage lender says the decision by the FDIC and Colonial to freeze its accounts devastated its lucrative servicing business.
But the FDIC points out that federal regulators and the FBI raided Taylor Bean's Ocala, Fla., offices amid reports that the company's accounting firm halted an audit after uncovering evidence of massive fraud.
Taylor Bean "is far from an innocent victim of regulatory overreach or precipitous action by mortgage investors and other lenders as it claims," the FDIC said.
The agency also noted lenders and investors terminated Taylor Bean's servicing rights only after Freddie Mac and Ginnie Mae ousted the company as the servicer for their huge loan portfolios.
"The FDIC has since learned that [Taylor Bean] may have 'double-pledged' mortgage loans of at least $866 million and kited millions more in loans between accounts," the agency said.
Taylor Bean wasn't immediately available for comment.
The FDIC wants Judge Jerry A. Funk of the U.S. Bankruptcy Court in Jacksonville, Fla., to lift the Bankruptcy Code's automatic-stay provision, forcing Taylor Bean to turn over all records, tapes and undeposited funds related to servicing the loans so it can transfer servicing to another company.
Mortgage servicers like Taylor Bean are also responsible for collecting and paying homeowners' insurance and real estate taxes. But the FDIC says Taylor Bean's refusal to hand over the loan information means property taxes and insurance premiums aren't being paid. The FDIC says nearly half a million homeowners' insurance polices could lapse in the middle of hurricane season as a result of Taylor Bean's actions.
A number of other mortgage investors including Freddie Mac, Sovereign Bank and Wells Fargo Bank are also seeking similar information. A hearing on the dispute is scheduled for Friday.
Taylor Bean and Colonial had a close relationship. Earlier this year, Taylor Bean and a group of other investors sought to pump $300 million into Colonial, which would have enabled Colonial to become eligible for a $550 million federal bailout. But the two sides failed to get regulatory approvals, and that plan was scuttled in July.
The FDIC was named receiver of Colonial Bank after regulators seized the Montgomery, Ala., bank on Aug. 14 and sold its assets to BB&T Corp. Notably, BB&T, based in Winston Salem, N.C., didn't acquire any Colonial assets tied to Taylor Bean. Taylor Bean filed for Chapter 11 bankruptcy protection 10 days later.