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 The bankruptcy filing announced Thursday gives First Guaranty Mortgage Corp. (FGMC) the flexibility to submit a reorganization plan to keep its business alive and pay creditors over time. Companies that have no hope of staying in business usually ask 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 is filed for bankruptcy protection, 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 will support FGMC’s operations, “including prepayments to employees and vendors in the ordinary course and pursuant to bankruptcy provisions,” it said. the society.

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 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 a “exclusive suite of products», MaverickSolutions.

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 the FGMC and its subsidiary, Maverick II Holdings LLCreveal that FGMC has between $500 million and $1 billion in estimated liabilities and between 1,000 and 5,000 creditors.

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