Just when we though the financial crisis might be over…or starting to be over, at least…came two more bank failures today. The larger one was Colonial BancGroup of Montgomery, Alabama. Colonial is the sixth largest bank failure in American history. The FDIC swooped in to save the day, and competitor BB&T will buy the bank’s assets.

Big deal, you say. What does it matter to those of us who aren’t Colonial customers? It’s a problem if you’re taking out a mortgage anytime soon.

[Publisher of trade publication Inside Mortgage Finance Guy] Cecala said Colonial was a significant player in the sector of the business known as “mortgage warehouse” lending, which provides financing needed by mortgage brokers and non-bank lenders to make home loans.

“The more firms like this that get out, the more dependent we get on large banks, and less competition there is. That’s never a good thing,” he said. Warehouse lending used to be a huge source of funds for home loans, according to Cecala, but the mortgage defaults and declining home prices of recent years has decimated the business.

“The warehouse lending market is now so fragile and so small, it doesn’t help when we lose anybody,” he said. “We have only a cup of water where we used to have a bucket of water.”

Colonial is the 74th bank to fail in the United States this year.

BB&T buys Colonial bank [CNN]

(Photo: jordanfischer)

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