A Plano, Texas-based mortgage lender laying off hundreds of its employees because of "significant operating losses and cash flow challenges" stemming from unforeseen historical adverse market conditions for the mortgage lending industry has filed for Chapter 11 bankruptcy protection.
First Guaranty Mortgage Corp. and an affiliated entity, Maverick II Holdings LLC, filed for bankruptcy protection in the District of Delaware on Thursday. Company officials said the bankruptcy filing was done to "protect the business while exploring all available restructuring options." First Guaranty has notified its regulators.
First Guaranty noted its financial challenges as being the reason behind the company laying off 76% of its workforce, or more than 400 employees at its Plano headquarters, according to a Worker Adjustment and Retraining Notification letter the company sent to government officials in Texas. The landlord of the office building listed the mortgage lender's space on the market for lease Thursday, according to a Dallas-Fort Worth research director tracking the space.
The company's leaders "made considerable efforts to address our ongoing financial challenges related to the state of the mortgage market," said CEO Aaron Samples in a statement. However, the company "must do what is best for our borrowers," which was to file for Chapter 11 to retain a portion of its workforce to manage its day-to-day business.
For borrowers with closed mortgages, officials said there is no impact with those loans already being serviced by third parties. For other borrowers who have started but not yet completed the loan process, First Guaranty has "taken action to accommodate the maximum number of borrowers," according to a company statement. First Guaranty has identified at least one potential partner to support the pipeline of in-process loans, officials said.
The company is finalizing its debtor-in-possession financing, which officials expect will enable it to close and fund approved consumer loans under existing terms and conditions. The debtor-in possession financing, which could also fund go-forward payments for remaining employees and vendors, would need court approval. The bankruptcy court would also need to approve any employee incentive or retention program developed by the lender.
Officials said the sharp and unexpected decline in performance reflects pressure on mortgage originations because of the "dramatic collapse of the mortgage refinance market" and "the weakening mortgage purchase market," which has suffered from increasing affordability issues and a lack of housing inventory. Those factors led to significant losses for the company's mortgage revenue and constrained its liquidity.
A hearing for first-day motions in the bankruptcy case is scheduled for Friday at 10 a.m. EST at the bankruptcy court at 824 N. Market St. in Wilmington, Delaware.