According to an article in the Atlanta Journal on August 10, HomeBanc made the filing on Thursday in Wilmington, Del. Carol Knies, HomeBanc’s vice president of investor relations said it would sell its mortgage operations and related assets of its HomeBanc Mortgage Corp. subsidiary to Countrywide Financial. HomeBanc originates prime mortgage loans that are sold to investors through mortgage-backed securities, and the company said its main problem was it could no longer access its credit lines to fund new loans.
A Chapter 11 filing allows a company to keep its management in place, reorganize its debts and obtain new financing. It also prevents creditors from forcing the sale of corporate assets.
HomeBanc has listed assets of $5.1 billion and debt of $4.9 billion, according to the 22-page filing. Among its biggest creditors: JPMorgan Chase & Co., Fannie Mae, Freddie Mac, Wells Fargo Bank, Commerzbank AG, U.S. Bank, PriceWaterhouseCoopers and BNP Paribas.
Homeowners whose mortgages are with HomeBanc must continue to make their payments as before, the company said.
“This does not affect their loan with HomeBanc,” Knies said. “They need to continue making their loan payments.”
HomeBanc said those customers would be notified in advance of any future changes.
Countrywide has said it would retain some of HomeBanc’s 1,000 employees but it is unclear how many of them that will be or what will happen to those workers who remain with HomeBanc.
Separately, in a regulatory filing with the U.S. Securities and Exchange Commission, Countrywide hinted the liquidity crisis in the mortgage industry will make it tougher to do business. Many financial institutions and Wall Street investment firms that grant companies like HomeBanc credit lines to make loans, have yanked those lines as a growing number of the riskiest borrowers have defaulted on their loans.
At the same time, investors who bought these loans through mortgage-backed securities have become extremely skittish and are turning away from such investments.
Unable to get funding to make new loans or sell existing loans to investors, a number of mortgage companies including American Home Mortgage Investment Corp., New Century Financial Corp. and SouthStar Funding LLC collapsed.
And while the problem loans have mainly been in the so-called subprime market, those customers who have bad credit, even companies that didn’t do much business in that segment — HomeBanc’s subprime volume was less than 1 percent of its total originations — were still caught up in the fray.
“We believe the current environment of rapidly changing and evolving credit markets may provide increasing challenges for the financial services sector, including Countrywide,” the company wrote in its filing. “We also believe that the challenges facing the industry should ultimately benefit Countrywide as the mortgage lending industry continues to consolidate.”
Knies said the warning had no bearing on the acquisition deal with Countrywide. Officials of Countrywide did not return calls seeking comment.
HomeBanc, whose shares were delisted from trading on the New York Stock Exchange Aug. 3, was to have reported second quarter results by Thursday but was granted an extension by the SEC until Tuesday. Knies said she did not immediately know if the company would make that deadline. Its annual meeting is scheduled for Aug. 30 in Atlanta.