Bankrupt Reverse Mortgage Funding, LLC (RMF), the nation’s fifth-largest reverse mortgage lender as of December, has accelerated the pace of layoffs in recent weeks. This occurred as RMF faced new bankruptcy complications, including the termination of Leadenhall Capital Partners as a debtor-in-possession (DIP) lender.
The lender’s servicing rights were recently transferred to Ginnie Mae, but RMF has consumer borrower obligations outside of the Ginnie Mae mortgage servicing rights (MSR) portfolio. According to RMF, the forthcoming DIP facility will allow these loans to be transferred to a new servicer without interruption.
East Coast layoffs
RMF’s Worker Adjustment and Retraining Notification (WARN) filings in New York and New Jersey were amended in December to include more layoffs in both states. Per the New Jersey WARN notice, 65 Bloomfield employees will be displaced in February 2023. The New York notice states that 254 employees will be laid off by the end of March, and was revised to include 21 additional employees.
In December, 119 employees were let go from RMF’s Melville, New York office. The WARN notice cited “economic” reasons for the layoffs. It is not clear what share of New York employees are still employed by RMF.
RMD sent a request for comment to RMF but did not immediately receive a response.
A former New York employee filed a class action lawsuit in December 2022 alleging that nearly 500 employees who were impacted by the November layoffs were not given 60 days advance written notice regarding their terminations. The suit also alleges that RMF did not follow legal requirements specified in the WARN Act.
As of January 10, RMF has not responded to the allegations outlined in the class action lawsuit in its court filings.
An employment attorney, who commented on a similar case in 2019, said that companies facing WARN Act lawsuits can typically defend themselves in two ways, generally speaking. One is by demonstrating the company tried to obtain financing and/or stay in business. The other is to explain to a judge that the company had no reason to believe it would close before layoffs were made.
RMF sought additional DIP financing early in its bankruptcy case to continue funding operations and necessary obligations under the bankruptcy agreement — a sum that could have totaled over $124 million.
However, attorneys for RMF state in a new court filing that the company did not receive “the vast majority of the funds as contemplated by the Joint DIP,” and that one of its warehouse lenders — Leadenhall Capital Partners — provided a termination notice. Per the filing, Leadenhall is no longer a DIP lender outside of a small sum.
RMF also transferred its Ginnie Mae MSR portfolio to Ginnie Mae, but 6,134 consumer borrowers remain outside of the Ginnie Mae portfolio. This issue requires attention to minimize loan disruption, according to RMF’s filings.
“Crucially, the DIP Facility will allow the Debtors to continue their progress towards an orderly transition of these borrowers as seamlessly — and with as little disruption — as possible, which would be extremely difficult, if not impossible, to do should these cases be converted to chapter 7,” the filing states.
RMF will make its case for revision of a final proposed DIP order later this week in the U.S. Bankruptcy Court for the District of Delaware.
“The Debtors remain diligent in their efforts to achieve their goal of confirming a chapter 11 plan and effectuating an orderly winddown in these Chapter 11 Cases,” the filing states. “However, the only way the Debtors could achieve those value-maximizing objectives is with the Court’s entry of the Final DIP Order that provides [RMF parent] with the appropriate protections that reflect the severely distressed position the Debtors find themselves in and is otherwise substantially consistent with the expectations of the Debtors, the DIP Lender, and [Texas Capital Bank].”
RMF’s recent collapse
RMF abruptly halted its origination activities on November 21 and filed for Chapter 11 bankruptcy protection the following week. Sources who spoke to RMD about the lender’s collapse attributed the rise in interest rates to heavy losses for both Home Equity Conversion Mortgage (HECM) and proprietary reverse mortgage volume.
The decline in volume had an impact on RMF’s HECM servicing business, which caused its loan-securitization outlets to freeze both private-label bonds and Ginnie Mae-guaranteed HECM-backed securities. These events triggered a cascade of defaults on RMF’s warehouse-lending lines, which provided the lifeblood cash flow for the lender.
The collapse of RMF was the most-read story on RMD in 2022.