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First Guaranty Mortgage Corporation – Seeks Court Approval for $4.8mn Private Sale of Mortgage Servicing Rights to BSI Financial Services

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August 15, 2022 – The Debtors filed a motion seeking Court authority for a private sale of certain mortgage servicing rights ("MSRs")* to BSI Financial Services, Inc (the “Buyer”) [Docket No. 328]. The Sale agreement is attached as Exhibit B to the motion.

* "MSRs or SCRs [Servicing Contract Rights], as applicable: (i) which have been originated pursuant to the related Prepetition Financing Facilities or the Prepetition Bridge Loan Agreement, and (ii) which have been, or will be originated pursuant to the Barclays DIP Repo Facility, by way of a private sale to the Buyer."

The motion states, “In connection with the Debtors’ mortgage loan origination business, the Debtors retain certain servicing rights created at the time of origination, including the right to service such mortgage loans, all rights to receive servicing fees and ancillary income of such mortgage loans, the right or obligation to collect, hold, and disburse all monies collected and/or escrowed, such as monthly payments with respect to such mortgage loans, the right to receive interest income on such amounts, and all rights, powers and privileges incident to any of the foregoing. 

Prepetition, the Debtors established subservicing relationships with Rushmore Loan Management Services, BSI, and Specialized Loan Servicing LLC to subservice the related mortgage loans in which the Debtors perform servicing on account of such loans.

FGMC, in the ordinary course of its business, then sold mortgage loans to Freddie Mac and were subject to the express terms of the Freddie Mac Agreements (defined and described below). In addition, FGMC, in the ordinary course of its business, sold mortgage loans to the other Agencies, which loans were also subject to applicable Agency Agreements.

Thus, as part of the Debtors’ ongoing business operations, they have in the past entered into (i) certain bulk MSR or SCR purchase and sale agreements to sell and transfer MSRs or SCRs, as applicable, related to mortgage loans which have been previously sold to the GSEs and Ginnie Mae (or their designees), and (ii) certain ‘flow’ purchase and sale agreements in which the Debtors have agreed to sell and transfer the MSRs or SCRs, as applicable, related to certain mortgage loans to be sold to the GSEs and Ginnie Mae (or their designees) at a future date in the ordinary course. In connection with such purchase and sale agreements or Transfer of Servicing Agreements (with respect to Freddie Mac and as defined in the Freddie Mae Guide), and subject to any required consents by the Agencies, the parties had determined not only a servicing transfer date on which the related MSRs or SCRs, as applicable, will actually transfer from the Debtors to the related successor servicer, but also the name of the designated successor servicer.

Postpetition, the Debtors retain the right and/or obligation to service mortgage loans originated pursuant to, and subject to the (i) related Pre-Petition Financing Facilities, (ii) Barclays DIP Repo Facility, and (iii) the Prepetition Bridge Loans, which have not yet been designated to a successor servicer. By this Motion, the Debtors are seeking authorization to expeditiously sell and transfer the MSRs or SCRs, as applicable: (i) which have been originated pursuant to the related Prepetition Financing Facilities or the Prepetition Bridge Loan Agreement, and (ii) which have been, or will be originated pursuant to the Barclays DIP Repo Facility, by way of a private sale to the Buyer.

In connection with such purchase and sale agreements, or any Transfer of Servicing Agreement (with respect to Freddie Mac), each Agency asserts approval rights over the respective sale and transfer agreements, and related successor servicers. The Debtors and the Buyer, each respectively, acknowledge that the proposed servicing transfer is subject to the Agencies’ respective consent.

Ginnie Mae has advised that the Debtors must identify a successor servicer to which it intends to transfer the MSRs related to the Ginnie Mae loans, approved by Ginnie Mae in its sole discretion, on or before August 15, 2022. It should be noted that no later than September 1, 2022, the Debtors must deliver to the Buyer certain mortgage files and other information for purposes of completing certain due diligence requirements pursuant to the Sale Agreement. In order to meet these deadlines, the Debtors identified the Buyer as successor servicer to Ginnie Mae. In addition, to assure a smooth and seamless transfer of the data and records necessary to service the loans, and to accommodate the approval process of the transfer of the MSRs or SCRs, as applicable, by the other Agencies, the Sale Agreement has set September 15, 2022 as the ‘Sale Date’ and November 1, 2022 as the ‘Transfer Date’.”

Key Terms of Sale Agreement

  • Seller: First Guaranty Mortgage Corporation (FGMC)
  • Buyer: BSI Financial Services 
  • Purchase Price: The Estimated Gross Purchase Price of $4.8mn. Determined as of anticipated Sale Date (GNMA – 2.02 x net servicing fee x UPB and FNMA/FHLMC – 2.43 x net servicing fee x UPB) to be paid in installments, as follows: 
    1. 80% payable on the Closing Date; 
    2. 10% payable on the 90 day anniversary of the Transfer Date; and 
    3. 10% payable on the 180 day anniversary of the Transfer Date. 
      • Closing Date: Closing shall occur as soon as possible after all Conditions Precedent have been satisfied or waived, as applicable, on or prior to the Sale Date of September 15, 2022.

About the Debtors

According to the Debtors, “Prior to the Petition Date, the Debtors operated as a full service, non-bank mortgage lender offering a full suite of residential mortgage loan options tailored to borrowers’ different financial situations. The Debtors were one of the leading independent mortgage companies in the United States that originated residential mortgages through a national platform. As described in more detail below, the Debtors’ business included the origination, purchase, service, sale, and/or securitization of residential real estate mortgage loans.

However, due to unforeseen historically adverse market conditions for the mortgage lending industry, including unanticipated market volatility, the Debtors have experienced significant operating losses and cash flow challenges. As a result of these challenges, they were forced to cease all of their origination activity and terminate the employment of nearly eighty percent (80%) of their workforce just prior to the Petition Date.

FGMC’s corporate headquarters are located in Plano, Texas. The Debtors have regional offices in Texas, Virginia, Utah, Hawaii, Maryland, Missouri, Nevada, New Jersey and North Carolina. FGMC is licensed to operate in all fifty states and the District of Columbia and is a national Ginnie Mae and Fannie Mae direct lender and approved Freddie Mac seller and servicer, with licenses and/or approvals from the Federal Housing Administration (‘FHA’), the United States Department of Veterans Affairs (‘VA’), Ginnie Mae and the United States Department of Agriculture.”

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The post First Guaranty Mortgage Corporation – Seeks Court Approval for $4.8mn Private Sale of Mortgage Servicing Rights to BSI Financial Services appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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