Friday, August 14, 2009

Warehouse Fire

And as if CIT's clubbing of its bondholders weren't bad enough, here comes news that Colonial Bank is cooked.  A Federal court has frozen its assets.

Colonial Bank is a major source of warehouse lines of credit, which basically means that it's a place mortgage banks go for revolving credit to originate loans.  The number of sources for warehouse lines has diminished drastically in the last two years, and the loss of Colonial puts a big hole in a shrunken market.  Even before this, it looked like there would be a 20% shortfall of warehouse lines relative to mortgage demand.  Now?  It could easily shoot through 25%.  The good news is that, as mortgage rates go back up, demand will go down, so there will be a new equilibrium.  It won't provide much in the way of "green shoots" for our "recovery", though.

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