Ditech Holding Corporation, parent company of Reverse Mortgage Solutions (RMS), announced its fourth quarter and full year 2018 financial results in a form 10-K filing released Tuesday, which details an expectation that their unprofitable reverse mortgage arm will remain so while also saying that the company cannot guarantee that it will successfully emerge from Chapter 11 bankruptcy.
“Our reverse mortgage business has been unprofitable and we expect losses to continue in this segment,” the filing reads. “Our reverse mortgage business generated significant losses before income tax [and we] expect to continue to generate losses in that segment. We service a substantial portfolio of reverse loans and expect to incur continued losses on that servicing activity.”
The filing goes on to read that the losses are expected to be driven by the costs of servicing defaulted reverse loans that are part of the company’s securitized portfolio, while specifying that the company will continue to, “fund undrawn amounts available to borrowers of reverse loans we have made.”
The company also details its “substantial levels of indebtedness” at-large, totalling approximately $3 billion.
“Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations,” the filing read.
This also affects the company’s ability to successfully leverage its Chapter 11 status into a successful reorganization.
“There can be no assurance that we will successfully reorganize and emerge from the Chapter 11 proceedings or, if we do successfully reorganize, as to when we would emerge from the Chapter 11 proceedings,” the filing stated.
Even a successful emergence from Chapter 11 status could also spell trouble in the company’s efforts to operate in the future.
“Even after a Chapter 11 plan is confirmed and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders, suppliers and other counterparties to do business with a company that recently emerged from bankruptcy proceedings.”
It was recently revealed that a loophole in Ditech’s bankruptcy proceedings has invited scrutiny from both consumer advocacy groups and the Department of Justice. In the midst of the financial difficulties that Ditech is embroiled in, RMS seems to be relatively insulated from the larger problems of its parent company, at least from an operational perspective.
Recently after the closure of a Ditech facility in Minnesota, an RMS company spokesperson told RMD that operations related to reverse mortgages would be unaffected.
In a February filing with the Securities and Exchange Commission, Ditech also secured financing from its debtor-in-possession (DIP) facilities, allowing some of its subsidiaries – including RMS – to gain access to portions of up to $1.9 billion in available financing.
This follows a continually unfolding odyssey of financial problems for Ditech, which was delisted from the New York Stock Exchange (NYSE) following warnings that stemmed from its failure to meet the NYSE listing standard in 2018 following its first bankruptcy filing earlier that year.
In January, Ditech stated that it elected not to make an approximately $9 million cash interest payment to its creditors in December 2018, putting the company at risk of default.