Taylor, Bean & Whitaker Mortgage Corp, the 12th-ranked mortgage lender in Massachusetts in 2009, abruptly closed up shop last week after federal agents raided its offices and federal housing agencies pulled the company from their approved seller and servicer lists. The sudden collapse left multiple mortgage lenders and consumers in a stupor as they search for alternative sources for signed deals with no funding.

The shutdown sent the Massachusetts Mortgage Bankers Association (MMBA) and the Massachusetts Mortgage Association (MMA) scrambling late last week to help their members find other lenders to finance their loans.

“We reached out to all of our members to see what they had in the pipeline with Taylor Bean,” said Denise Leonard, executive director of the MMA. “We went out to our wholesale members to see what they could to do expedite some of the loans. We’ve a phenomenal response from our lender members.”

The sudden collapse also caught the state’s Division of Banks (DOB) off guard, as they issued a cease-and-desist order for Taylor Bean late Thursday afternoon, a full day after the company essentially ceased to exist.

Chain-Reaction Collapse

Taylor Bean’s offices in Ocala, Fla. were raided by federal agents on Monday; the federal Department of Housing and Urban Development (HUD), which oversees the Federal Housing Administration (FHA), has accused Taylor Bean of making misleading statements and irregular transactions, which raised concerns of fraud. Taylor Bean was barred from making any FHA-insured loans.

The move effectively put them out of business; the company was the third-largest FHA lender in June, according to The Wall Street Journal. No new loans will be originated, and any pending loans in the pipeline are dead, according to the company’s press release.

Through July, Taylor Bean has been the 12th largest lender in Massachusetts, writing 1,936 loans for $536.5 million in total volume, according to data provided by The Warren Group, publisher of Banker & Tradesman.

The DOB is now tasked with protecting the consumers who have already signed closings funded by the now-defunct wholesale lender. The division also will try to mitigate the fallout for table funding lenders, whose names are on closing papers but receive their funding from wholesale lenders like Taylor Bean.

It’s illegal in Massachusetts for a table funding lender to sign closing documents, and then fail to fund a loan, even if the wholesale lender originally slated to purchase the loan goes out of business.

“If you’re a table-funder, then your name is on the initial closing papers,” said Ann Trudeau, president of Walden Mortgage in Concord. “Those are the brokers, who I don’t know what their legal departments are going to do. Because their name is on it, they’re going to be on the hook. We could be talking about millions of dollars [they are liable for] if they had a lot of closings recently.”

According to Robert Prevelige, president and CEO of Zenith Mortgage Advisors in Milford, Taylor Bean had several deals extended and still closing with rates locked under 5 percent. Those rates won’t be available that low anywhere else.

“Those can’t happen; we can’t duplicate those,” Prevelige said. “I can’t offer them those rates anymore, without writing them a check to go to closing. That may be the route that table lenders are forced to take.”

Prevelige said the DOB has been lenient in the recent past to lenders caught in this kind of bind. Lenders probably won’t have their licenses suspended because they are unable to deliver on their terms. But that won’t stop consumers from filing suit, he said.

Prevelige was a broker for Taylor Bean; Taylor Bean’s name was on the closing documents, and it will be the company liable for those loans not getting funded. Prevelige and Zenith Mortgage Advisors have only lost a business partner, and a piece of their reputation.

“What’s lost is trust in the model,” Prevelige said. “If I have Realtors who refer us business because we do a great job, and then we call them up and say, ‘We can’t do this because our lender folded,’ they don’t care. They just know their buyer is going to be able to close. We are the point people, so that relationship degrades as result.”

Trudeau said, like Prevelige, she only serves as a broker so her company won’t be liable. But that doesn’t really take away the sting.

“I’m going to be OK, except that I’ve lost a lender that has really good rates and really good products,” Trudeau said. “It only narrows the playing field, and that hurts everybody.”

She said the person most hurt by the whole thing is probably the homebuyer who thought they had closed on a new home.

“They’re going to be pissed off about everything,” Trudeau said. “The rug just got pulled out from under them.”n