Residential lender First Guaranty Mortgage Corp. filed for bankruptcy, citing worsening conditions in the mortgage market as home sales slow and fewer home borrowers refinance due to rising interest rates and tight housing supply, WSJ Pro Bankruptcy reported. First Guaranty cut 471 jobs, nearly 80% of its workforce, and ceased loan originations ahead of Thursday’s chapter 11 filing. The company turned to chapter 11 as mortgage refinancings slowed nationwide and a series of margin calls on hedging instruments drained its cash, court papers show. First Guaranty is backed by investment firm Pacific Investment Management Co., which has teamed up with Barclays PLC to offer the company roughly $150 million in total financing to carry it through chapter 11. First Guaranty said it is lining up a financing package to carry it through chapter 11 and enable it to fund consumer loans for borrowers in the mortgage pipeline who haven’t yet closed. The bankruptcy stems from “intense pressure on mortgage originations due to the dramatic collapse of the mortgage refinance market and the weakening mortgage purchase market,” First Guaranty said. The average rate on a 30-year, fixed-rate mortgage sits at 5.70%, pushed up from 3.22% at the beginning of the year as the Federal Reserve increases interest rates and pulls back its purchases of mortgage bonds. That has made it the least affordable time to purchase a home since before the financial crisis, according to the Federal Reserve Bank of Atlanta. Rising rates also reduce the number of borrowers who would save on monthly payments by refinancing. The Federal Reserve Bank of New York has said mortgage originations fell 25% in the first quarter compared with the previous year, dragged down by a 40% annual decline in refinancings. In court papers, First Guaranty said it faced a series of margin calls on financial hedges, causing a liquidity crisis in the weeks before the bankruptcy filing. A slowdown in refinancings cut down the company’s mortgage originations this year to a projected annual pace of $5 billion to $6 billion, compared with the $10.6 billion it originated last year, according to a sworn declaration by Chief Executive Aaron Samples.
When news first surfaced that Panthers owner David Tepper had taken the shell company he formed to build his team’s new practice facility to bankruptcy, some pundits were concerned that he was playing a financial shell game with companies that provided services to the construction effort. The company owed the most money for a project that was aborted through no fault of its own has expressed concern, too, NBC.com reported. Via TheAthletic.com, Mascaro/Barton Malow contends it is owed $80 million. It claims that Tepper and the Panthers provided the real money and influence to the project that technically was managed by GT Real Estate. “Virtually every aspect of this case is tainted by the control of Tepper and the Carolina Panthers,” the contractor said in a court filing, later referring to the “murky and suspicious structure that is the Debtor/Tepper/Carolina Panthers enterprise.”
For the past two years, anyone who had a home to sell could get practically any asking price. Good shape or bad, in cities and in exurbs, seemingly everything on the market had a line of eager buyers. Now, in the span of a few weeks, real estate agents have gone from managing bidding wars to watching properties sit without offers, and once-hot markets like Austin, Texas, and Boise, Idaho, are poised for big declines, the New York Times reported. The culprit is rising mortgage rates, which have spiked to their highest levels since the 2008 housing crisis in response to the Federal Reserve’s recent efforts to tame inflation. The jump in borrowing costs, adding hundreds of dollars a month to the typical mortgage payment and coming on top of two years of home price increases, has pushed wishful home buyers past their financial limits. “We need the housing market to bend to rein in inflation, but we don’t want it to break, because that would mean a recession,” said Mark Zandi, chief economist at Moody’s Analytics. Home prices are still at record levels, and they are likely to take months or longer to fall — if they ever do. But that caveat, which real estate agents often hold up as a shield, cannot paper over the fact that demand has waned considerably and that the market direction has changed. Sales of existing homes fell 3.4 percent in May from April, according to the National Association of Realtors, and construction is also down. Homebuilders that had been parsing out their inventory with elaborate lotteries now say their pandemic lists have shriveled to the point that they are lowering prices and sweetening incentives — like cheaper counter and bathroom upgrades — to get buyers over the line.
The Supreme Court will hear two bankruptcy cases in the term to begin this coming October. Yesterday, the high court granted certiorari to decide whether the failure to obtain the stay of a sale approval order erects a jurisdictional bar to appeal under Section 363(m), according to an analysis in today’s Rochelle’s Daily Wire. The courts of appeals are split 6-2. Led by the Second Circuit, the minority hold that Section 363(m) is jurisdictional and bars an appeal from any order that is “integral” to a sale order. The Fifth Circuit sides with the Second. The majority — composed of the Third, Sixth, Seventh, Ninth and Tenth Circuits — hold that Section 363(m) only sets limits on the relief that a court may grant on appeal from a sale order and is not jurisdictional. With the grant of certiorari, the Supreme Court will review MOAC Mall Holdings LLC v. Transform Holdco LLC (In re Sears Holdings Corp.), 20-1846, 2021 BL 481940, 2021 US App Lexis 37358, 2021 WL 5986997 (2d Cir. Dec. 17, 2021).
New York’s biggest mall has reached a deal with lenders to avoid a default after the pandemic and years of retail turmoil left it deeply underwater on its mortgages, Bloomberg News reported. Destiny USA, a 2.4 million-square-foot (223,000-square-meter) shopping center in Syracuse, owed $430 million on two mortgage-backed securities that missed a June 6 repayment deadline. The mall’s owner, Pyramid Management Group, said Thursday that it got a five-year extension for its loans, with flexibility to keep investing in the property. The agreement buys time for Pyramid to return the property to profitability so bondholders can recover their investment, Pyramid Chief Executive Officer Stephen Congel said in an interview. “It’s like turning an aircraft carrier around at sea: it takes some time and space,” he said. “They realized time was important, and they gave it to us.” Congel said he couldn’t discuss financial terms of the extension, including how much Pyramid committed to invest in the property or if the interest rate changed. The expired loans have a 3.81% coupon. The mall’s value sank some 80% to just $147 million in an appraisal last year. Destiny was slammed by the usual suspects that have hurt malls broadly, as shoppers shift to e-commerce and pandemic lockdowns froze their businesses. But Pyramid was in an especially tough spot partly because of efforts a decade ago to make Destiny an entertainment destination, with go-karts, a ropes course and other accoutrements designed to lure more people through the door. That project was funded with $280 million of municipal debt, which would get paid before commercial mortgage-backed securities in a bankruptcy. That threatened recovery prospects for mortgage-bond investors. The new agreement doesn’t affect terms of the municipal debt, which matures in 2028 and 2036, Congel said.
A New York City panel that regulates the rents for roughly one million rent-stabilized apartments yesterday approved the highest increases in almost a decade, after property owners said that they were being pinched by taxes and rising expenses, the New York Times reported. At a raucous meeting at Cooper Union in Manhattan, the Rent Guidelines Board voted 5 to 4 to raise rents on one-year leases by 3.25 percent in rent-stabilized homes, and on two-year leases by 5 percent. Many tenants argued for a rent freeze or rollback, while landlords were seeking even higher increases, but the panel had signaled its intent to support a middle-ground approach at a meeting last month. The increases affect roughly two million New Yorkers. New York City, already one of the most expensive places to live in the nation, has seen the cost of living rise amid a rebound from the worst of the pandemic. Soaring inflation has hit tenants and property owners, and the effect on landlords’ ability to maintain buildings was one of the major factors that the board considered. But the vote also intensified concerns about the shortage of affordable housing and the sustainability of the city’s recovery.
Mortgage delinquency rates in March fell below the 3% mark, reaching another historic low as a strong labor market and income growth drove down the number of property owners who are late on their mortgage payments, HousingWire.com reported. About 2.7% of all mortgages in the U.S. were delinquent in March, dropping 2.2 percentage points from the 4.9% posted in March 2021, according to CoreLogic‘s latest loan performance report. Other contributing factors to the decline were rising home prices and the resulting equity gains providing alternative options to those who may be coming out of forbearance or facing foreclosures, said CoreLogic’s report. “The share of borrowers in any stage of delinquency was at an all-time low in the first quarter of 2022,” said Molly Boesel, principal economist at CoreLogic. While the share of borrowers in any stage of delinquency was at an all-time low in the first quarter of 2022, Boesel expects distressed sales to rise over the coming year.
