The shifting mortgage market has sent ripples throughout the lending industry that have manifested in waves of layoffs as companies look to adapt to the changing times. While this has become a common trend in the past six months, some companies have struggled more than others.
That’s been the case for First Guaranty Mortgage Corp. (FGMC), which announced yesterday that it had filed chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware on June 30 along with its affiliate Maverick II Holdings, LLC.
“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 FGMC CEO Aaron Samples in a press release.
The company claims in the petitions that it has experienced “significant operating losses and cash flow challenges” due mainly to the volatile mortgage lending market.
“In 2021, intense competition for mortgage originations, in part due to the collapse of the refinancing market, resulted in a sharp decline in the Debtors’ performance,” read an excerpt from the filing. “The Debtors’ margins on the sale of loans also declined dramatically.”
Like many mortgage companies that have seen their profits tumble amid the current market shift, FGMC’s filing painted a picture of its financial woes as mortgage rates have climbed in 2022.
For the four months ending April 30, 2022, the Texas-based company tallied $23.3 million of after-tax net loss, which is partially attributed to lower origination volumes. Despite the company raking in $1.7 billion in mortgages during that time, FGMC indicated that its sales profit gains “continued to be very weak.”
The bankruptcy filing comes less than a week after the Texas-based mortgage lender laid off nearly 80% of its workforce on June 17. According to a WARN notice sent to the Texas Workforce Commission, FGMC terminated 428 of its 565 employees.
Initial reports regarding the firings indicated that the layoffs were caused by “significant operating losses and cash flow challenges due to unforeseen historical adverse market conditions for the mortgage lending industry, including unanticipated market volatility.”
While the layoffs indicate the persisting strain mortgage companies have had to endure under rising mortgage rates and shrinking refinance originations, the approach in which FGMC fired its workers harkens back to a now-infamous wave of layoffs conducted by Better.com CEO Vishal Garg.
National Mortgage Professional (NMP) reported that Samples fired workers during a 10-minute virtual meeting on Microsoft Teams. Based on former employee accounts featured in NMP, Samples cited “several general economic hurdles” plaguing FGMC, like market compression and geopolitical issues, as reasons for terminating everyone on the call immediately.
RISMedia also spoke with a former FGMC employee impacted by the layoffs, who confirmed what the reports indicated. The former employee requested that they be anonymous in this story and drew comparisons between FGMC’s firings and the Better.com Zoom-call firings.
“For Better Mortgage, they didn’t show much empathy,” they say. “It was pretty similar to last Friday. There was a brief call over Microsoft Teams, and he said, ‘if you are in the call, your job has been cut.'”
Admittedly, the former employee said the announcement came as a surprise despite a general understanding that the mortgage lending environment has been in flux for the past year and a half.
“Our business was shrinking for sure, but there was some niche in the industry,” they say, highlighting FGMC’s work with non-qualified mortgages as an example of products that the company could have leaned on during the market shift.
On June 15, FGMC announced a new stand-alone second lien program that the company touted as an “exciting new addition” to its suite of non-QM products under its affiliate Maverick Solutions.
“The market is still there, so they were optimistic and were coming up with new products,” the former employee continues. “Our impression was they’ll be alright.”
Several other former employees took to social media to lament the loss in the days following the layoffs.
“One constant in my nearly 30 years in the mortgage industry is that when I find a job that feels like home, I am going to give well over 100% and will not leave until they kick me out,” wrote Stacy Lighton, a former VP of Credit Policy at FGMC, on LinkedIn. “My most recent position as vice president of Credit Policy was with First Guaranty Mortgage Corporation, a company that felt like family until last Friday when most of the staff was abruptly released.”
Other impacted employees painted pictures of the unexpectedness of the incident.
“FGMC cut about 80% of its workforce on Friday and has stopped accepting new mortgage applications,” read a LinkedIn post by former FGMC Account Executive Tina Ogden Smith.
“The company laid off around 500 employees without severance payment,” the post continues. “Sure sign of doors closing in near future.”
According to the former employee, a severance package was not offered immediately after the layoffs occurred. However, they tell RISMedia that FGMC has since offered severance, including a week’s work-worth of pay for every year they worked at FGMC.
Employees weren’t the only ones blindsided by FGMC’s behavior, as lender partners indicated that they were also left without updates on whether the company would purchase and fund loans that had already been approved for purchase.
“I’m positive I am not alone when wondering ‘will you be honoring your commitment to purchase these loans, and when can we expect them to be purchased?’” wrote Dani Hernandez, vice president of mortgage at UpEquity in Austin, Texas.
In her letter to FGMC, which was posted on LinkedIn, Hernandez indicated that the last communication UpEquity received from FGMC was two weeks ago, and the company was told that FGMC would “honor these locks and pricing.”
“Now FGMC has gone radio silent,” Hernandez wrote. “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.
“Leadership at FGMC, we understand this is a difficult time, but you owe it to your lender partners to let us know what is happening, so others do not suffer,” the letter concluded.
While FGMC’s bankruptcy filing isn’t expected to affect closed mortgages, the company indicated that it has “taken action to accommodate the maximum number of borrowers who have started but not yet completed the loan process.”
“FGMC is finalizing debtor-in-possession financing that will enable it to close and fund approved consumer loans under existing terms and conditions,” FGMC stated.
The company also indicated that it identified one or more potential partners to provide optionality to support the pipeline of in-process loans.
The debtor-in-possession financing still needs to be approved by the Court. The same applies to an “employee incentive and retention program” that FGMC is trying to develop.
“As part of this process, the Company retained a portion of its workforce to manage the day-to-day business,” Samples said. “We are 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.”