On its website, First Guaranty Mortgage Corp. (FGMC) lists four “company pillars,” one of which is “strengthen communications.”
“Relationships are the foundation of our business,” it states for this pillar. “We are committed to ongoing, transparent communication internally with each other and externally to our customers. By communicating effectively, we ensure that we are keeping our promises to one another and following through on our commitments.”
That’s news to some of its lending partners, who complain they have heard nothing further from FGMC after it announced it would stop purchasing new loans in the wake of its mass layoff of 471 employees on June 24. FGMC subsequently filed on Thursday for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code in U.S. Bankruptcy Court for the District of Delaware.
Charlie Fleming, president of Remarkable Mortgage in Athens, Ga., shared with National Mortgage Professional a form-letter email his company received Tuesday afternoon. The email begins by stating that FGMC is facing “significant, unexpected, and unprecedented economic pressures” along with the “entire mortgage market.”
It continues, “As part of our efforts to address these challenges, FGMC will no longer purchase correspondent loans.”
It adds, “We value our relationship with you and appreciate your patience and understanding as we seek a comprehensive solution to these issues. We will provide you with an update when there is definitive news to share.”
In a news release about the bankruptcy filing on Thursday, FGMC stated that the bankruptcy “has no impact on closed mortgages, which are already serviced by third parties.”
It also states that FGMC has “taken action to accommodate the maximum number (of) borrowers who have started but not yet completed the loan process.” The company said it is finalizing debtor-in-possession financing that will enable it “to close and fund approved consumer loans, under existing terms and conditions.”
The release added that FGMC “has further identified one or more potential partners to provide optionality to support the pipeline of in-process loans.”
Seeking Court Approval For Financing
Later Thursday, however, the company shared with NMP a declaration it filed with the bankruptcy court. While it had previously stated it had identified "one or more potential partners" to help fund the loans in process, in the declaration it states, "Despite their best efforts, the Debtors (FGMC) were unable to obtain additional equity capital or financing."
The declaration does state that FGMC is "now focused on funding and closing the committed mortgages remaining" in its pipeline.
The declaration states that FGMC "determined that, in order to protect part of the current 'pipeline' (loans not yet funded), they needed to suspend all new loan applications, suspend all correspondent lending, cease all hedging payments, and significantly reduce their workforce." FGMC states that it determined that filing for Chapter 11 protection "was the best way to preserve operational ability to help customers purchase and refinance their homes."
It adds that the debtor-in-possession (DIP) financing is necessary to "obtain critical funding enabling the Debtors to fund loans to be originated to borrowers intending to close on their home purchase within the next 60-90 days."
The DIP would replace its previously existing credit lines that are no longer available due to the bankruptcy filing, FGMC said.
"The DIP Repo Facility is necessary in order to prevent the harm that would result if those borrowers were unable to complete the purchase of or refinance their homes because we failed to fund their acquisition loans." the declaration states.
'Radio Silent'
While filing the declaration with the bankruptcy court in Delaware, FGMC's lending partners say the company still has shared nothing with them.
Fleming, whose company is a small correspondent lender that regularly sold loans to FGMC, says that since he received the email from the company on Tuesday, he has heard nothing else.
“They have not engaged in any communication whatsoever about the loans we have in process with them,” he said. “This (email) is the only thing we received.”
He’s not the only lender complaining. In a post on LinkedIn, Dani Hernandez of UpEquity posted an open letter to FGMC asking whether the company will honor its commitment to purchase loans approved over the previous two weeks.
“The last communication we have had from #FGMC was two weeks ago,” Hernandez wrote in her post, adding, “Now FGMC has gone radio silent.”
She added, “Please let your lender partners know if we should be looking for other investors to sell these loans to or if and when you will be funding these loans you’ve committed to purchasing.
Among the comments to her post was one from Louann Bernstone, managing director, head vendor and investor relationships and learning and development at Promontory MortgagePath LLC in Colorado. In her comment, Bernstone said, “crickets from our former contacts, but I suspect they are no longer employed.”
A similar comment was posted by Beverly Shillingford, operations manager at Tennessee Trust Mortgage, who stated, “we are in the same position!”
'An Amazing Partner'
For Fleming, the lack of contact by FGMC is a surprise.
“FGMC was an amazing partner for us,” he said. “That’s why everyone is shocked. They had phenomenal customer service; they closed loans and bought loans quickly. It’s really sad. … When you are a delegated correspondent, you need partners like that.”
Fleming described Remarkable Mortgage as a “small lender backed by a community bank,” with just seven full-time employees. As a delegated correspondent lender on conventional loans, Remarkable Mortgage processes, underwrites, closes, and funds loans, he said.
“By the time the customer makes their first payment, we sell that loan to FGMC,” he said.
Fleming said his company has four such loans, with a combined value of about $1 million, in FGMC’s pipeline, but the company has not paid for them yet. He said his company has three other non-delegated, non-conventional loans — for which, in contrast to the conventional loans, FGMC does the underwriting — valued at a combined $500,000 that had been sent to FGMC but have not yet closed.
He expects to find other funders for the conventional loans, but said that it will reduce his company's profit on the loans. The other loans, however, are stuck in limbo.
“We’ve never tread these waters before,” he said. “We’re going to have to adapt and overcome. It’s just sadness for these awesome people who got let go. As lenders, we’re so sorry, but what do we do now?”
