Colonial BancGroup: Mauled by mortgages
Alabama’s Colonial BancGroup became the largest U.S. bank failure this year, after regulators last week seized the bank and sold its operations to a rival, said Cosby Woodruff in the Montgomery, Ala., Advertiser. North Carolina’s BB&T will take over Colonial’s $25 billion in assets and its 346 branches in five states. Colonial lent heavily to developers and home buyers in Florida, where the housing crisis has hit especially hard. The bank’s failure is the largest since regulators seized Washington Mutual and sold it to Bank of America in 2007.
Colonial’s demise is bad news for the U.S. mortgage market, which has recently been struggling back to life, said Colin Barr in CNNmoney.com. Colonial was a leading “warehouse” lender, buying mortgages from other lenders and holding them while they were being packaged into securities. The lenders then recycled the proceeds into more mortgage lending. With Colonial—which controlled a quarter of the $200 billion warehousing market—out of the picture, “mortgages could become even harder to get.”
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