Less than a week after laying off hundreds of workers and refusing new mortgage applications, First Guaranty Mortgage Corp. (FGMC) and its affiliate Maverick II Holdings filed for Chapter 11 bankruptcy protection late Wednesday.
“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,” Aaron Samples, chief executive officer of FGMC, said in a statement.
FGMC, controlled by global investment management firm PIMCO, said it had “significant operating losses and cash flow challenges due to unforeseen historical adverse market conditions for the mortgage lending industry, including unanticipated market volatility.”
HousingWire reported on Friday that FGMC laid off around 80% of its workforce in a virtual meeting. Later that day, the company sent a WARN Notice to the Texas Workforce Commission, explaining it had terminated 428 of its 565 employees. A deal for funding with fintech firm PLACE fell through, sources told HousingWire.
In the wake of the mass layoff on Friday, correspondent lending partners have complained about a total lack of communication with the company. They are particularly worried about loans already approved but not purchased by FGMC.
According to those sources, FGMC adopted an aggressive pricing strategy to purchase loans from correspondent partners, often paying 20 basis points higher than other investors on 30-year fixed-rate mortgages. When the markets became particularly volatile in mid-June, losses became too great and PIMCO made the decision to shut the company down, company sources said.
The company said the bankruptcy action has no impact on closed mortgages, which are already serviced by third parties. FGMC said it has taken steps to accommodate the maximum number of borrowers who have started but not yet completed the loan process.
FGMC claims that loans in the pipeline will be closed and funded, under existing terms and conditions, due to a debtor-in-possession financing and potential partners. The debtor-in-possession financing, however, needs the Delaware bankruptcy court’s approval.
Several former correspondent partners told HousingWire they’ve struggled to sell their pipeline of loan elsewhere on such tight timelines.
FGMC said it is in the process of developing an employee incentive and retention program, which requires Court approval. As part of the Chapter 11 process, the company retained a portion of its workforce to manage the business.
Several former workers on Wednesday also filed lawsuits related to the layoffs. Jennifer Jackson said the company violated the WARN Act and seeks damages amounting to 60 days’ pay and employee retirement income security benefits. In a separate lawsuit, John Slater and Lee Ann Casanova made similar claims.
James Kleimann contributed reporting.