Nonbank Hometown Lenders files for bankruptcy

Hometown Lenders has filed for Chapter 11 bankruptcy protection in Alabama, blaming the Federal Reserve’s policy to curb inflation for its debacle. 

In court filings, the Huntsville, Alabama-based company stated that as of April 30, 2023, it owed approximately $107.1 million to taxing authorities, former employees, warehouse lenders, and general unsecured creditors.

Warehouse lender Flagstar Bank, which has a lawsuit filed against Hometown Lenders, has the largest unsecured claim, $20.1 million. It’s followed by another warehouse lender, First Horizon Bank ($3.5 million), investor Freddie Mac ($3.4 million), and the Internal Revenue Service ($942,797). 

Hometown Lenders, founded in 2000 by William Taylor, had 1,400 employees in 46 states in 2021. According to mortgage tech platform Modex, it originated $3.3 billion in 2022, compared to $5.5 billion the previous year. Most were conventional (67%) and purchase (75%) loans.

“The Debtor, however, was not immune from the consequences of the Federal Reserve’s policy to curb inflation, which hit the mortgage industry in 2022,” Hometown’s attorneys said in court filings. “As a result of the sharp rise in mortgage rates, the Debtor’s top-line revenues declined by over 70%.”

The lender closed on October 13, 2023, amid a challenging mortgage market. The Modex data shows that it originated about $900 million in loans that year.

According to court filings, higher rates eliminated potential homebuyers from the market. Meanwhile, investors declined to purchase loans from lenders because they expected rates to decline and homeowners to refinance out of their higher-rate mortgages.

Ultimately, Hometown Lenders was required to repurchase the mortgages, pressuring its financials, it stated. When the company shut down, loans were sold to investors, except those remaining with Flagstar Bank and First Horizon.

“The Debtor maintains that these lenders are in possession of funds which rightfully belong to it and are being wrongfully detained by the lenders. The total amount of these funds exceeds $1 million,” the court filings state. 

A spokesperson for Flagstar hasn’t immediately responded to HousingWire‘s request for comments, and a representative at First Bank said the company had no comments.

Former employees also sued the company after it shut down. On May 26, 2024, a district court in Illinois entered an order forcing a settlement agreement with two former employees, Anthony Perri and Anthony Perri Jr.

They require the company to pay over their contributions to a deferred compensation plan maintained with the Principal Financial Group. This account currently has $750,000. 

“After exhausting all reasonable alternatives, Debtor has determined that a resolution outside of this Bankruptcy Court cannot be fairly and equitably achieved,” it states. “Thus, Debtor commenced this Chapter 11 case to maximize and preserve the value of its remaining assets for the benefit of all stakeholders as well as evaluate its remaining options.”

The lender states that the IRS is processing a request for $22 million in economic recovery credit, which could be used to pay priority and general unsecured creditors. 

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