The unraveling of Taylor, Bean & Whitaker Mortgage Corp. has left hundreds of community banks scrambling to find replacement buyers for their loans.

The Ocala, Fla., company, which stopped originating loans Wednesday, has been buying roughly $1 billion of mortgages a month from 600 members of the Independent Community Bankers of America.

Forty percent of that production was guaranteed by the Federal Housing Administration, which said Tuesday it would no longer do business with Taylor, Bean. This announcement came after a raid of the company's headquarters by federal law enforcement agencies Monday.

"The events of the last 48 hours are indeed tragic and shocking, quite frankly," said Gary Teagno, the president and chief executive of ICBA Services Network, a for-profit subsidiary of the trade group. "Our members are very concerned, and we're working hard to find alternatives" — other aggregators that can buy their loans.

James Deitch, the CEO of the $1.3 billion-asset American Home Bank in West Chester, Pa., said most community banks would be able to sell their loans to bigger institutions like Wells Fargo & Co., though some may hold the loans in their own portfolios.

"Having this happen in a stable rate environment is a big plus for community banks," he said. "This is another blow to mortgage brokers because there isn't a lot of capacity at the big aggregators, and they'd gladly take a community bank first.“ It's an opportunity for community banks to be in a position to take market share away from large competitors and independent mortgage bankers and brokers."

ICBA's relationship with Taylor, Bean leveraged the combined volume of the trade group's members to give them better pricing and service. Teagno said the trade group may eventually look for another such partnership, but right now "satisfying the banks' immediate needs is more important to us than a long-term program."

The timing of the federal actions may prove to be the one bright spot for community bankers, Teagno said. Because FHA cut off Taylor, Bean at the beginning of the month, few banks have applications stuck in the wholesaler's pipeline, he said.

Still, the trade group is working to help banks extricate those few remaining loans. Doing so may be "a little challenging," he said.

Taylor, Bean said Wednesday that Freddie Mac had terminated it as a seller-servicer. That was the lender's last secondary-market outlet, since it had also been terminated the day before by the Government National Mortgage Association, the agency that securitizes FHA-backed loans.

A Fannie Mae spokeswoman said it has not done business with Taylor, Bean in more than five years.

The lender said it has "unsuccessfully" sought to reverse the terminations by Freddie, Ginnie Mae and FHA and "will not be able to close or fund any mortgage loans currently pending in its pipeline." The company said it is cooperating with federal agencies.

Taylor, Bean was the lead investor in a group that intended to inject $300 million into its warehouse lender, Colonial BancGroup Inc. That deal fell apart, and the $25.8 billion-asset Montgomery, Ala., company warned last week that its viability was uncertain.

In addition to Taylor, Bean's offices, the Federal Bureau of Investigation and the special inspector general for the Troubled Asset Relief Program also raided a Colonial warehouse branch in Florida on Monday.

Glen Corso, a principal at the Warehouse Lending Project, a coalition of independent mortgage bankers trying to increase warehouse capacity for the industry, said Colonial had $5 billion in warehouse lines outstanding as of the end of May, or roughly 20% of all such lines in the country.

James Reynolds, the managing partner of Reynolds Group, a warehouse consulting firm in Summit, N.J., said small originators may suffer a "one-two punch" with both a major warehouse lender (Colonial) and a major aggregator of loans (Taylor, Bean) in jeopardy. "A lot of banks and people are going to be impacted by this."

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