Mortgage Lenders Network files Chapter 11 amid loan origination crises; looks to sell closed loans

By Caroline Salls

Pittsburgh, Feb. 6 - Mortgage Lenders Network USA, Inc. filed Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the District of Delaware and has requested court approval to sell closed loans that have been funded.

In the loan sale motion, the company also asked for court approval to honor loan commitments on which it closed before the bankruptcy filing, but was unable to fund.

According to court documents, the company experienced multiple crises in its loan origination business over the past two months, which left it unable to obtain the funding necessary to originate loans and left it responsible for multiple loan commitments it had closed but could not fund.

While Mortgage Lenders Network attempted to fix these funding problems, it received cease and desist orders from several states to stop further lending and obtain replacement funding for the unfunded loan commitments.

As a result, the company said these loans must be sold in order to honor its funding commitments.

Chief executive officer Daniel Scouler said in an affidavit filed with the court that the company plans to file its plan of liquidation during the second quarter of 2007.

In connection with the filing, the company requested court approval of up to $3 million in debtor-in-possession financing from Residential Funding Co., LLC.

The DIP will mature on the earlier of April 28 or upon occurrence of an event of default.

Interest will be Libor plus 400 basis points, and the DIP will be subject to availability of up to $3 million.

Mortgage Lenders Network will pay a $50,000 commitment fee.

Proceeds will be used in accordance with a budget.

The company's largest unsecured creditors include:

• Merrill Lynch Bank USA, New York, with a $36.56 million repurchase requests/deficiency claim;

• Ixis Real Estate Capital Inc., New York, with a $25 million MSR financing claim;

• Lehman Brothers Bank, FSB, New York, with a $9.93 million repurchase requests/deficiency claim;

• Wachovia Bank, NA, New York, with a $7.65 million judgment claim;

• Goldman Sachs Mortgage Co., New York, with a $4.71 million repurchase requests/deficiency claim;

• Greenwich Capital Financial Products, Greenwich, Conn., with a $3.97 million repurchase requests/deficiency claim; and

• Duffy While Construction, LLC, Ardmore, Pa., with a $1.86 million trade debt claim.

Mortgage Lenders Network listed more than $100 million in assets and more than $100 million in debt.

Mortgage Lenders Network is a Middletown, Conn.-based lending company. Its Chapter 11 case number is 07-10146.

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