A Texas-based national mortgage lender that specializes in riskier “non-QM” loans has filed for bankruptcy protection from creditors after laying off three-quarters of its workforce last week.

The Chapter 11 bankruptcy filing announced Thursday gives First Guaranty Mortgage Corp. (FGMC) leeway to submit a plan of reorganization to keep its business alive and pay creditors over time. Companies that have no hope of staying in business often file for Chapter 7 relief before liquidating their assets.

The sudden and unexpected June 24 layoffs at Plano, Texas-based FGMC left borrowers and FGMC’s wholesale and correspondent lender partners in the lurch, according to former employees.

In announcing that it’s filed for bankruptcy protection, FGMC said it’s “taken action to accommodate the maximum number [of] borrowers who have started but not yet completed the loan process.”

The company said it is in the process of finalizing financing “that will enable it to close and fund approved consumer loans, under existing terms and conditions. In addition, the company has further identified one or more potential partners to provide optionality to support the pipeline of in-process loans.”

If approved by the U.S. Bankruptcy Court for the District of Delaware, the financing — to be provided by a subsidiary of bond giant PIMCO — will support FGMC’s operations, “including go-forward payments to employees and vendors in the ordinary course and in accordance with bankruptcy provisions,” the company said.

FGMC said it’s paid salaries, accrued paid time off, and commissions that have come due to employees who were laid off, as well as severance payments to those who are eligible.

The company said it’s also in the process of developing an employee incentive and retention program for remaining employees, which requires court approval.

The Chapter 11 filing “was necessitated by significant operating losses and cash flow challenges experienced by the Company due to unforeseen historical adverse market conditions for the mortgage lending industry, including unanticipated market volatility,” FGMC said in announcing the move. “The sharp and unexpected decline in performance reflects the intense pressure on mortgage originations due to the dramatic collapse of the mortgage refinance market and the weakening mortgage purchase market, which has suffered from a lack of housing inventory and increasing affordability issues. These factors have resulted in significant losses on the company’s total mortgage revenues and overall liquidity constraints.”

According to the Nationwide Mortgage Licensing System, FGMC was formed in 1987, is licensed in 49 states and sponsors 164 mortgage loan originators, working out of 20 active branch locations. FGMC specializes in non-QM loans, offering a “proprietary suite of products” branded as Maverick Solutions.

Non-QM loans don’t meet underwriting standards for so-called “qualified mortgages” eligible for purchase by Fannie Mae and Freddie Mac, making them more difficult to bundle into mortgage-backed securities that are sold to investors.

The bankruptcy petitions filed by FGMC and its affiliate, Maverick II Holdings LLC, reveal that FGMC has between $500 million and $1 billion in estimated liabilities, and between 1,000 and 5,000 creditors.

FGMC’s largest creditors listed in its bankruptcy petition include:

• Hamilton, New Jersey-based Customers Bank ($25 million unsecured bank debt)
• South Street Securities LLC ($1.570 million margin call)
• Daiwa Capital Markets America Inc. ($1.4 million margin call)
• Sourcepoint Inc. ($605,071)
• Maxwell Financial Labs ($238,578)
• ICE Mortgage Technology ($220,986)
• Indecomm Holdings Inc. ($123,433)
• Optimal Blue LLC ($121,613)

FGMC owes smaller, or unspecified, amounts to a list of lenders and vendors that reads like a “who’s who” of the mortgage industry, including Ally Mortgage, Altisource Solutions, Amrock Inc., Capstone Mortgage Co., Carrington Mortgage Services, Equifax, Lenders One, Planet Home Lending, Seneca Mortgage Servicing, Total Expert Inc. and Xactus.

FGMC’s bankruptcy filing also reveals that a company affiliated with bond giant Pacific Investment Management Co. (PIMCO), B2 FIE IV LLC, owns 100 percent of FGMC’s common stock. Another PIMCO-affiliated company, B2 FIE XI LLC, has agreed to provide “debtor-in-possession” financing to provide operational cash flow to FGMC.

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Email Matt Carter