First Guaranty Mortgage Corp. (FGMC) [1] has announced that it and its affiliate Maverick II Holdings LLC have filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware [2].
The Chapter 11 cases are pending joint administration under Case No. 22-10584, before Judge Craig T. Goldblatt [3] in U.S. Bankruptcy Court.
FGMC, based in Plano, Texas, took action in order to protect the business while exploring all available restructuring options. FGMC has begun notifying its regulators and other pertinent parties. The move to Chapter 11 protection by FGMC has no impact on closed mortgages, which are already serviced by third parties.
"While we have made considerable efforts to address our ongoing financial challenges related to the state of the mortgage market, we ultimately must do what is best for our borrowers and consumers," said Aaron Samples [4], CEO of FGMC. "After careful review and consideration, the company determined that pursuing the protections of Chapter 11 is the right and responsible path at this time. As part of this process, the company retained a portion of its workforce to manage the day-to-day business. We are requesting that the Court approve a variety of motions that will promote a smooth transition for all pertinent parties while also preserving value for the benefit of the company's stakeholders."
According to a release [5], FGMC sought Chapter 11 protection because of significant operating losses and cash flow challenges presented by unforeseen historical adverse market conditions for the mortgage lending industry, including unanticipated market volatility. Record high mortgage rates [6] and skyrocketing home prices are just two of the factors that have played into market instability and waning homebuyer demand [6].
“The sharp and unexpected decline in performance reflects the intense pressure on mortgage originations due to the dramatic collapse of the mortgage refinance market and the weakening mortgage purchase market, which has suffered from a lack of housing inventory and increasing affordability issues,” said the release [5]. “These factors have resulted in significant losses on the company's total mortgage revenues and overall liquidity constraints.”
FGMC has taken action to accommodate the maximum number borrowers who have started, but not yet completed the loan process. The company is finalizing debtor-in-possession financing that will enable it to close and fund approved consumer loans, under existing terms and conditions. In addition, FGMC has further identified one or more potential partners to provide optionality to support the pipeline of in-process loans.
Via debtor-in-possession financing, once approved by the U.S. Bankruptcy Court, will also support the company's operations, including go-forward payments to employees and vendors in the ordinary course and in accordance with bankruptcy provisions. Additionally, FGMC is in the process of developing an employee incentive and retention program, which will require approval of the U.S. Bankruptcy Court for the District of Delaware.