First collateral mortgage files for bankruptcy protection from creditors
Filing under Chapter 11 will give the non-QM lender leeway to submit a reorganization plan to keep their business alive and pay creditors over time.
A Texas-based national mortgage lender specializing in riskier “non-QM” loans has filed for bankruptcy protection against creditors after laying off three-quarters of its workforce last week.
The Chapter 11 bankruptcy filing announced Thursday gives First Guaranty Mortgage Corp. (FGMC) leeway to submit a reorganization plan to keep its business alive and pay creditors over time. Businesses that have no hope of staying in business typically often file for Chapter 7 relief before liquidating their assets.
The sudden and unexpected June 24 layoffs at Plano, Texas-based FGMC left FGMC’s borrowers and wholesale and correspondent lending partners in dire straits, according to former employees.
In announcing that it has filed for bankruptcy, FGMC said it has “taken steps to accommodate the maximum number [of] borrowers who have started but not yet completed the loan process.
The company said it is in the process of finalizing the financing and “this will allow it to close and fund approved consumer loans, under existing terms and conditions. In addition, the company has further identified one or more potential partners to provide an option to support the ongoing loan pipeline.”
If approved by the U.S. Bankruptcy Court for the District of Delaware, the funding – which will be provided by a subsidiary of bond giant PIMCO – will support FGMC’s operations, “including advance payments to employees and suppliers in the course normal and in accordance with bankruptcy provisions,” the company said.
The FGMC said these included paid wages, accrued vacation pay and commissions owed to terminated employees, as well as severance pay to those who were eligible.
The company said it is also developing an employee incentive and retention program for the remaining employees, which requires court approval.
The Chapter 11 filing “was necessitated by significant operating losses and cash flow challenges experienced by the company due to unforeseen historical adverse market conditions for the mortgage industry, including unforeseen market volatility” , said FGMC in announcing the decision. “The sharp and unexpected drop in performance reflects the intense pressure on mortgage originations due to the dramatic collapse of the mortgage refinancing market and the weakening of the mortgage purchase market, which suffered from a lack of housing inventory and increasing affordability issues have resulted in significant losses to the company’s total mortgage income and overall liquidity constraints.
According to the National Mortgage Licensing System, FGMC was established in 1987, is licensed in 49 states, and sponsors 164 mortgage originators, working from 20 active branches. FGMC specializes in non-QM loans, offering an “exclusive suite of products”, Maverick Solutions.
Non-QM loans do not meet underwriting standards for so-called “qualified mortgages” eligible for purchase by Fannie Mae and Freddie Mac, making them more difficult to bundle into mortgage-backed securities that are sold to investors.
Bankruptcy petitions filed by FGMC and its affiliate, Maverick II Holdings LLC, reveal that FGMC has between $500 million and $1 billion in estimated debt and between 1,000 and 5,000 creditors.
FGMC’s major creditors listed in its bankruptcy petition include:
- Customers Bank based in Hamilton, New Jersey (unsecured bank debt of $25 million)
- South Street Securities LLC ($1.570 million margin call)
- Daiwa Capital Markets America Inc. ($1.4 million margin call)
- Sourcepoint Inc. ($605,071)
- Maxwell Financial Laboratories ($238,578)
- ICE Mortgage Technology ($220,986)
- Indecomm Holdings Inc. ($123,433)
- Optimal Blue LLC ($121,613)
FGMC owes smaller or unspecified amounts to a list of lenders and vendors that reads like a “who’s who” of the mortgage industry, including Ally Mortgage, Altisource Solutions, Amrock Inc., Capstone Mortgage Co., Carrington Mortgage Services , Equifax, Lenders One, Planet Home Lending, Seneca Mortgage Servicing, Total Expert Inc. and Xactus.
The bankruptcy filing also reveals that an affiliate of bond giant Pacific Investment Management Co. (PIMCO), B2 FIE IV LLC, owns 100% of FGMC’s common stock. Another PIMCO affiliate, B2 FIE XI LLC, has agreed to provide debtor-in-possession financing to provide operating cash flow to FGMC.
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Email Matt Carter