A day after laying off 80% of its staff — about 400 people — Reverse Mortgage Funding LLC filed for protection from creditors in federal bankruptcy court.
The Bloomfield, N.J.-based reverse mortgage lender on Wednesday filed a petition for Chapter 11 bankruptcy in U.S. Bankruptcy Court for the District of Delaware. Under Chapter 11, a business may continue to operate under court supervision while it reorganizes its finances.
RMF is a wholly owned subsidiary of Reverse Mortgage Investment Trust Inc. (RMIT), a specialty finance company in the reverse mortgage sector. RMIT is an affiliate of Starwood Capital Group, a global private investment firm and an innovator in non-agency mortgages. According to the filing, Starwood affiliates own 94.3% of the shares in RMIT; the filing does not identify who owns the other 5.7%.
In a statement emailed Wednesday afternoon to NMP, RMIT said it is "in ongoing, productive discussions with its mortgage servicing rights (MSR) secured lender and other industry players, including Ginnie Mae, to achieve an agreement that ensures a smooth landing for the company's servicing portfolio, as well as other obligations. In the meantime, RMIT has already begun work to transfer the remaining loans in its pipeline to other lenders in order to support seniors looking to unlock value in their homes."
In the bankruptcy petition, RMF seeks approval to enter into a debtor-in-possession financing facility with BNGL Parent LLC, though the document does not list an amount being sought.
The company told the court the estimated number of its creditors totals between 1,000 and 5,000. It also checked boxes indicating that both its estimated assets and its estimated liabilities are between $10 billion and $50 billion.
RMF included with the petition a list of its top 30 creditors. Topping the list is Compulink, doing business as Celink, a reverse mortgage servicer, but the document does not list how much the company is owed. Second is the law firm Lowenstein Sandler, owed more than $1 million.
Other major creditors include Microsoft Corp.; DB Trust Co. Americas; Adfitech Inc.; Texas Capital Bank; and LendingTree.
In its statement, RMIT said it made the decision to seek Chapter 11 bankruptcy protection "after weeks of negotiations with its constituents, and has begun notifying its borrowers, regulators, and other pertinent parties."
RMIT said both it and the broader mortgage industry face "a number of adverse trends, in particular unprecedented interest rate hikes combined with credit spread widening and overall volatility in fixed income markets, including agency mortgage markets. The market disruption has increased capital requirements to originate and finance new loans and support the company’s servicing portfolio, which severely strained RMIT’s liquidity position and depleted the company’s book value."
RMIT added, "In line with these trends, earlier this month, the company made the difficult but necessary decision to pause all origination activities and, most recently, conducted a reduction in force."
Wednesday’s bankruptcy filing followed Tuesday’s mass reduction in force, in which RMF laid off about 400 people, or about 80% of its staff of approximately 500.
While the company’s headquarters is located in New Jersey, it was formed in Delaware and has corporate offices in New York and California, as well as field offices throughout the United States.
RMF filed a notice with California state employment officials under the federal Worker Adjustment and Retraining Notification (WARN) Act, which requires companies to provide 60 days advance notice of a mass layoff. The notice, dated Tuesday, is signed by CEO Craig Corn and states that RMF "intends to lay off certain employees based out of its Gold River facility located at 2355 Gold Meadow Way, Ste. 150, Gold River, CA 95670. The expected beginning date of the employee layoffs is November 29, 2022 and these layoffs will be permanent."
The notice included a list of affected job titles, which totaled 44.
RMF also filed WARN Act notices in New York and New Jersey, according to someone with knowledge of the filings who requested anonymity because they are not authorized by RMF to comment, but those notices were not immediately available.
In its statement, RMIT added that, in conjunction with the Chapter 11 filing, it will file a number of customary motions with the bankruptcy court seeking to "enable the company to preserve the value of its assets for its stakeholders and minimize business disruption during the process."
Under federal law, the company and its affiliates are prohibited from paying debts obligations that arose before the filing date without a court order. RMIT said its court filings and information about the claims process are available here.
The layoffs come a week after the company emailed a letter addressed to its “partners” stating that it was pausing its mortgage origination activities.
In an emailed statement about that decision, a company spokesperson said that RMF, “like many of its peers, has been challenged by unprecedented interest rate hikes and overall macroeconomic volatility. As a result, the cost of financing and securitizing reverse mortgages has made it impossible for RMF to continue originations for seniors looking to unlock value in their homes at this time.”
The statement added that RMF “has been working diligently with its constituents to support its business and is doing everything possible to weather these challenging market conditions.”
As of the end of October, RMF was the nation’s fifth-largest reverse mortgage originator, with a market share of 7.4%, according to Reverse Market Insight. That was down from 10.5% at the same point last year.
