Rising Bank Owned Foreclosure Affected Lender Colonial

by on Foreclosure Crisis

Regulators have ordered Colonial BancGroup Inc., a lending company based in Montgomery, Alabama, to stop the operation of its banking unit until such time that it has increased its capital and reduced problem and non-performing assets. Colonial blamed the increasing bank owned foreclosures on its portfolio on the financial woes that its banking unit is currently experiencing.

The order to cease-and-desist was signed by the Alabama State Banking Department and the Federal Deposit Insurance Corp. (FDIC).

According to Colonial, the order also provides oversight and management of the unit and improvement of capital and earnings.

Upon news of the issuance of order to stop operation, Colonial’s shares dropped by almost 59 percent or 50 cents. The company is waiting for a federal approval to its capital infusion of about $300 million from a group of investors led by Taylor Bean and Whitaker Mortgage Co.

In 2008, Colonial had a memorandum of agreement with regulators which requires the bank to increase its capital ratios early this year. The growing number of bank owned foreclosures on its construction-loan portfolio in Florida continues to put pressure on the finances of the company.

More than 50 percent of Colonial’s branch operations are located in Florida. Construction loans comprised 60 percent of the company’s loan portfolio which is now swamped with bank owned foreclosures.

According to industry experts, banks and lending institutions with heavy exposure in Florida were severely affected by the housing market crisis. For the last 12 months, Colonial saw its stock value dropped by over 75 percent.

Colonial claimed that the order to stop operation will not affect loans or customer deposit accounts. The Alabama company has more than $26 billion in assets and majority of its income is sourced from its banking unit.

Meanwhile, 3,669 properties in Alabama received foreclosure filings in the first quarter of this year, representing a 74 percent rise from the fourth quarter of 2008 and a whopping 116 percent increase from the first quarter 2008 total.

In March, Alabama’s foreclosure filings went up by 217 percent to 2,260 compared with February figures and 248 percent higher from the March 2008 total.

One out of 582 houses in Alabama is in danger of becoming bank owned foreclosures.