First Guaranty files for bankruptcy

First Guaranty Mortgage Corp. filed for bankruptcy Thursday, seeking Chapter 11 protection less than a week after it laid off more than 75% of its workforce over significant losses in mortgage revenues.

The Plano, Texas-based lender and its affiliate, Maverick II Holdings LLC, submitted the filing in the U.S. Bankruptcy Court for the District of Delaware as it explores restructuring options, it said in a press release. FGMC said its finalizing debtor-in-possession financing which, once approved by the court, will allow it to close and fund approved consumer loans under existing terms and conditions and support employee and vendor payments. 

The lender said it’s also identified at least one potential partner to provide optionality to support the in-process loan pipeline. Its closed mortgages are already serviced by third parties.

“While we have made considerable efforts to address our ongoing financial challenges related to the state of the mortgage market, we ultimately must do what is best for our borrowers and consumers,” said Aaron Samples, chief executive officer of FGMC. 

The company last Friday laid off 471 employees in an alleged 10-minute Microsoft Teams message from Samples. A Texas Worker Adjustment and Retraining Notification notice earlier this week said 428 employees were terminated, and the final tally was disclosed in a bankruptcy filing. 

Among the remaining 134 staff, the lender revealed it currently employs eight commissioned employees in sales and origination roles, down from approximately 292 prior to last Friday’s layoff. FGMC filed a motion Thursday to cover unpaid wages to former and current employees and vendor and commission payments, and will appear before a federal judge to address the bankruptcy motions Friday morning.

Five former FGMC employees have filed federal class action complaints this week against the lender in Nevada and Texas federal courts, alleging the company failed to provide adequate notice of the layoff according to the WARN Act. The lawsuits seek the sum of unpaid wages, salaries, commissions, bonuses, accrued PTO and other benefits, although none specify a dollar amount for combined damages.

New Jersey-based Customers Bank holds a $25 million unsecured bank debt against FGMC, the largest unsecured claim according to Thursday’s filing. The next largest claims are margin calls; a $1.5 million claim from New York-based South Street Securities and a $1.4 million claim from New York-based Daiwa Capital Markets America Inc. 

First Guaranty has also requested a judge approve an interim of $275K in critical vendor payments in the interim to continue operations, with a final amount not to exceed $800K. 

FGMC said its cash flow challenges stemmed from “unforeseen historical adverse market conditions” and blamed the refinance market now down 80% year-over-year. The bankruptcy filing is the first from a prominent lender amid the industry’s cycle of layoffs, in which companies from market leaders to startups have trimmed payrolls amid interest rates hitting their highest level in 14 years and declining volume from last year’s record $4.4 trillion in originations.