The Huntsville, Ala.-based mortgage lender said in bankruptcy court that it plans to repay creditors by claiming more than $20 million in tax credits and recouping $1 million from warehouse lenders.
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A non-bank mortgage lender that went into bankruptcy court as its nationwide expansion plans hit rising mortgage rates says it now plans to pay off most of its debt to its creditors by applying for more than $20 million in tax credits and clawing back $1 million. It’s owed by the warehouse lender.
Huntsville, Ala.-based Hometown Lenders, which also does business as 1st Family Mortgage, filed for Chapter 11 bankruptcy protection on June 3, seeking relief from creditors while executing a repayment plan.
Hometown Lenders’ attorneys said in the motion that as of April 30, the lender was pursuing $107 million in claims from tax authorities, former employees, warehouse lenders and general unsecured creditors.
Hometown Lenders’ plan to pay off its creditors includes filing a $22 million Economic Recovery Credit (ERC) claim with the Internal Revenue Service, which, if approved, would “provide a significant pool of funds that can be used to make payments to priority and general unsecured creditors.”
Hometown Lenders is also suing two of its largest warehouse lenders — Flagstar Bank and First Horizon Bank — saying they have funds “rightfully theirs.”
According to Hometown Lenders’ list of the 40 largest unsecured creditors, Flagstar Bank claimed it was owed $20.1 million, while First Horizon claimed it was owed $3.5 million.
National expansion clashes with rising interest rates
Hometown Lenders was founded in 2000 and “quickly became the largest mortgage banker in Alabama,” according to a statement filed by CEO William “Billy” Taylor, Jr.
After expanding in 2018 to serve borrowers nationwide, Hometown Lenders has grown to more than 1,400 employees in 2021 with 120 offices in 46 states, Taylor said.
Hometown Lenders continues to expand, opening 18 new branches in 2022, with the majority opening in the first half of the year.
At that time, the Federal Reserve began raising interest rates 11 times, bringing short-term interest rates to their highest level since 2001.
Mortgage rates fell in response, and Taylor said Hometown Lenders’ loan production fell from 1,500 loans per month in the first quarter of 2022 to less than 100 loans per month by mid-2023, forcing the company to lay off 1,000 employees.
Taylor said Hometown Lenders was not only making fewer loans, it was also being asked to buy back more mortgages because investors were “unwilling or unable to purchase them at prevailing rates.”
As of the end of June 2023, Hometown Lenders has shrunk to approximately 400 employees and fewer than 40 offices. As mortgage rates continued to climb toward post-pandemic highs in the fall of 2023, Hometown Lenders closed its doors on Oct. 13 and laid off its remaining employees.
Disputes with warehouse lenders
As an independent, non-bank mortgage lender, Hometown Lenders relies on warehouse lenders to fund the loans it originates, which it then sells to investors such as Fannie Mae and Freddie Mac.
Hometown Lenders’ primary warehouse lenders are Flagstar Bank, which provided a $60 million revolving credit line, and First Horizon Bank, which provided a $45 million credit line. Hometown Lenders also has smaller lines of credit from Bank of Georgia, Narpointe Bank and South State Bank.
Taylor said he believes that once all loans originated by Hometown Lenders are sold to investors and all debt owed to Flagstar and First Horizon is paid off, the company “should have surplus funds at those banks.”
Although Hometown Lenders is no longer in operation, he said the company anticipates filing “several lawsuits” and believes “sufficient funds will be generated to pay allowable claims of priority and general unsecured creditors.”
In addition to Flagstar and First Horizon’s claims, Heath Quick, whose LinkedIn profile lists him as the owner of Hometown Lenders, has filed an unsecured claim for $7 million. Conrad Thompson, a former 1st Family Mortgage loan originator who now works for Nations Lending Corp., is seeking $5 million.
Other major unsecured creditors include Freddie Mac ($3.4 million), the IRS ($943,000) and a long list of vendors including ICE Mortgage Technology ($617,000), Rapidscale ($541,000), Certified Credit Credit ($475,000), Equifax Workforceforce( Solutions ($459,000), SimpleNexus ($400,000), and Black Knight ($289,000).
A meeting of creditors is scheduled for July 9 in the U.S. Bankruptcy Court of North Alabama in Decatur. Creditors have until Sept. 9 to oppose Hometown Lenders’ petition to discharge its bankruptcy debts.
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