Bankrupt lender Reverse Mortgage Funding (RMF) and its parent company Reverse Mortgage Investment Trust (RMIT) won court approval Monday to borrow $13 million to fund payments to reverse mortgage borrowers as it winds down operations.
The court approval will allow RMF, owned by Starwood Capital Group, to continue its operations while also facilitating the sale of its reverse mortgage servicing portfolio to fellow top reverse lender Longbridge Financial.
RMF declined to comment, as did Longbridge.
RMF appeared in the U.S. Bankruptcy Court for the District of Delaware Monday morning to seek approval for debtor-in-possession (DIP) financing. An RMF attorney told the court that it is nearing an agreement with Longbridge to transfer its Ginnie Mae Home Equity Conversion Mortgage (HECM) mortgage servicing rights (MSR) portfolio to Longbridge Financial LLC by early next year.
“The debtors and one of its secured lenders, Leadenhall, reached a deal in principle that would facilitate the transfer of the company’s servicing platform to Longbridge,” an RMF attorney said in court on Monday morning. “The terms of that deal, and the related financing had been the subject of around-the-clock negotiations and work by Leadenhall, Longbridge, [warehouse lender] Texas Capital Bank, our parent, Ginnie Mae and FHA, among others.[…] That work is still ongoing, and we’re optimistic that we’ll be back before you very soon with the finalized terms of that deal.”
In a court filing published after the hearing, the court authorized RMF to continue its normal course of business in order to continue its securitization activities and honor its Ginnie Mae agreements, honor servicing and curtailment obligations, collect and securitize servicing fees, and consummate loan sales to Longbridge. The $13 million loan comes to RMF via a Starwood affiliate, according to court filings.
“The market disruption has increased capital requirements to originate and finance new loans and support the Company’s servicing portfolio, which severely strained [RMF parent company] RMIT’s liquidity position and depleted the Company’s book value,” the company statement said. “In line with these trends, earlier this month, the Company made the difficult but necessary decision to pause all origination activities, and most recently, conducted a reduction in force.”
Nearly 500 employees were impacted by a layoff that happened in conjunction with the bankruptcy filing, according to court documents reviewed by RMD.
A company that files for Chapter 11 bankruptcy protection is still permitted to operate under court supervision while reorganizing its finances, and is allowed to create a plan to pay back its creditors over time. Financial decisions, including which creditors are paid, must be approved by the bankruptcy court.
In December 2019, RMIT agreed to be acquired by an affiliate of Starwood Capital Group, a global private investment firm focused on real estate investments that has more than $60 billion in assets under management. Terms of the deal were not disclosed.
The deal ultimately closed in January of 2021, and according to documents related to the filing, Starwood owns 94.3% of RMIT shares. RMF intends to enter into a debtor-in-possession (DIP) financing agreement with “BNGL Parent, LLC,” but an amount for such a facility was not specified.
Securing DIP financing will provide RMIT/RMF with “near-term liquidity to operate and cover administrative expenses as it pursues restructuring options, once approved by the Bankruptcy Court,” the company statement said.