First Guaranty Mortgage files bankruptcy after ‘significant losses’

By Sarah Lizee

Olympia, Wash., June 30 – First Guaranty Mortgage Corp. and affiliate Maverick II Holdings, LLC filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware to protect the business while exploring all available restructuring options, according to a press release issued Thursday morning.

The company said the action has no impact on closed mortgages, which are already serviced by third parties.

First Guaranty Mortgage said it 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, the company said it has further identified one or more potential partners to provide optionality to support the pipeline of in-process loans.

The DIP financing, once approved by the 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.

Details of the DIP financing were not available at the time the petition was filed.

Additionally, the company said it is in the process of developing an employee incentive and retention program, which requires court approval.

As part of this process, the company retained a portion of its workforce to manage the day-to-day business.

The company is 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.

The company said 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 lending industry, including unanticipated market volatility.

“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,” the company said in the release.

“These factors have resulted in significant losses on the company’s total mortgage revenues and overall liquidity constraints.”

In its petition, the company listed $500 million to $1 billion in both assets and liabilities.

Its largest unsecured creditors are Customers Bank, based in Hamilton, N.J., with a $25 million unsecured bank debt claim, South Street Securities LLC, based in New York, with a $1.57 million margin call claim, and Daiwa Capital Markets America Inc., based in New York, with a $1.4 million margin call claim.

The Plano, Tex.-based mortgage lender filed Chapter 11 bankruptcy under case number 22-10584.

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