hometown lender Filed for Chapter 11 bankruptcy protection in Alabama, accuses Federal Reserve’s Policies to curb inflation were the reason for its failure.
The Huntsville, Alabama-based company said in court filings that as of April 30, 2023, it owed approximately $107.1 million to tax authorities, former employees, warehouse lenders and general unsecured creditors.
warehouse lender Flagstar Bankfiles lawsuit against hometown lender, Has the largest unsecured claim at $20.1 million. Followed by another warehouse loan institution, first horizon bank ($3.5 million), investor Freddie Mac ($3.4 million), and IRS ($942,797).
Hometown Lenders was founded in 2000 by William Taylor and in 2021 had 1,400 employees in 46 states. ModexIn 2022, it raised $3.3 billion, compared with $5.5 billion the year before. The majority were conventional loans (67%) and purchase loans (75%).
“However, the Debtors are not immune to the effects of the Federal Reserve’s inflation-containing policies, which will hit the mortgage industry in 2022,” Hometown’s attorneys said in court documents. “As mortgage rates have risen sharply, the Debtors’ total income dropped by more than 70%.”
The lender closed on October 13, 2023 due to a challenging mortgage market. Modex data shows the company originated about $900 million in loans that year.
According to court documents, higher interest rates exclude potential homebuyers from the market. At the same time, investors are refusing to buy loans from lenders because they expect interest rates to fall and homeowners to refinance from higher-rate mortgages.
Eventually, Hometown Lenders was required to buy back its mortgages, putting a strain on its finances, the report said. When the company failed, the loans were sold to investors, except for the remaining loans from Flagstar Bank and First Horizon.
“The debtors maintain that these lenders have funds that legally belong to them but have been wrongfully seized by the lenders. These funds total more than $1 million,” court documents state.
A Flagstar spokesman did not immediately respond to a request for comment. house lineAsked for comment, a representative for Bank One said the company had no comment.
Former employees also sued the company after it collapsed. On May 26, 2024, the Illinois District Court issued an order forcing a settlement agreement with two former employees, Anthony Perri and Anthony Perri Jr.
They asked the company to pay their contributions to a deferred compensation plan maintained by the company. Principal Financial Group. The account currently contains $750,000.
“After exhausting all reasonable alternatives, the Debtors determined that a resolution could not be reached fairly and equitably outside of bankruptcy court,” it states. “Accordingly, the Debtors commenced a Chapter 11 case to maximize and preserve the value of their remaining assets. value to benefit all stakeholders and evaluate their remaining options.”
Lenders said the Internal Revenue Service is processing requests for $22 million in Economic Recovery Credits, which can be used to pay priority and general unsecured creditors.
