First Guaranty Mortgage filed for Chapter 11 bankruptcy protection today in the U.S. Bankruptcy Court for the District of Delaware.
The Texas-based mortgage lender listed 30 creditors who are owed more than $34.75 million.
The bankruptcy protection filing will have no impact on closed mortgages and financing has been arranged to fund First Mortgage’s critical operations.
First Guaranty has also “identified one or more potential partners” that can provide the mortgage lender financial support, according to a National Mortgage Professional report.
The filing comes six days after First Guaranty laid off 428 of its 565 employees — 75% of its staff-who worked in its suburban Dallas office in Plano, Texas.
In a notice of layoffs filed with the Texas Workforce Commission, First Guaranty blamed “significant operating losses and cash flow challenges due to unforeseen historical adverse market conditions for the mortgage lending industry, including unanticipated market volatility.”
Mortgage demand is at its lowest in 22 years following the Federal Reserve’s move to hike interest rates to tame the nation’s 8-to-10 percent inflation rate.
The average 30-year fixed mortgage rate in the U.S. is over 6 percent, two months after moving past 5 percent.
First Guaranty said it is “exploring all available restructuring options” and has begun notifying regulators and other related parties about its bankruptcy protection filing.
First Guaranty said it will take action to help borrowers who have started but haven’t completed the loan process with the lender.
The company is finalizing an agreement to gain debtor-in-possession financing that will enable it to close and fund approved consumer loans, under existing terms and conditions, which will have to be approved by the court.
If approved, the financing would fund First Guranty’s operations, including payments to employees and vendors.
The company is also developing an employee incentive and retention program, which will also require court approval.
[National Mortgage Professional] — Karn Dhingra