In bankruptcy court, the Huntsville, Alabama-based mortgage lender says it plans to repay creditors by claiming more than $20 million in tax credits and clawing back $1 million from warehouse lenders.

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A nonbank mortgage lender that landed in bankruptcy court when its national expansion plans ran head-on into rising mortgage rates says it now plans to pay much of what it owes its creditors by claiming more than $20 million in tax credits and clawing back $1 million it claims it’s owed by warehouse lenders.

Huntsville, Alabama-based Hometown Lenders — which also did business as 1st Family Mortgage — filed for Chapter 11 bankruptcy protection on June 3, seeking relief from creditors while it executes a plan to repay them.

In its motion, attorneys for Hometown Lenders said that as of April 30, the lender was staring down $107 million in claims from tax authorities, former employees, warehouse lenders and general unsecured creditors.

Hometown Lenders’ plan to repay its creditors includes a $22 million Economic Recovery Credit (ERC) claim with the Internal Revenue Service which, if approved, would “provide a large fund from which payments can be made to both priority and general unsecured creditors.”

Hometown Lenders is also suing its two biggest warehouse lenders — Flagstar Bank and First Horizon Bank — saying they’re in possession of funds “which rightfully belong to it.”

According to a list of Hometown Lenders’ 40 largest unsecured creditors, Flagstar Bank, in turn, claims it’s owed $20.1 million, while First Horizon claims it’s owed $3.5 million.

National expansion collided with rising rates

Organized in 2000, Hometown Lenders “quickly became the largest mortgage banker in Alabama,” according to a declaration filed by CEO William “Billy” Taylor, Jr.

After expanding to serve borrowers nationwide in 2018, by 2021 Hometown Lenders had grown to more than 1,400 employees working out of 120 offices in 46 states, Taylor said.

Hometown Lenders continued to expand, opening 18 new branches in 2022, most of them in the first half of the year.

That’s when the Federal Reserve embarked on a string of 11 rate hikes that brought short-term interest rates to the highest level since 2001.

Mortgage rates followed, and Taylor said Hometown Lenders saw loan production fall from 1,500 loans per month in Q1 2022 to fewer than 100 per month by mid-2023, forcing the company to shed 1,000 workers.

Hometown Lenders was not only making fewer loans, but it was being required to repurchase more of the mortgages it originated because investors were “unwilling or unable to purchase those mortgages at the prevailing rate,” Taylor said.

By the end of June 2023, Hometown Lenders had scaled down to about 400 workers working out of fewer than 40 offices. As mortgage rates continued to climb toward post-pandemic highs in the fall of 2023, Hometown Lenders closed its doors on Oct. 13 and terminated its remaining employees.

Dispute with warehouse lenders

As an independent, nonbank mortgage lender, Hometown Lenders relied on warehouse lenders to fund the loans it originated before selling them to investors like Fannie Mae and Freddie Mac.

Hometown Lenders’ primary warehouse lenders were Flagstar Bank, which provided a $60 million revolving line of credit, and a $45 million line of credit from First Horizon Bank. Hometown Lenders also had smaller lines of credit from Georgia Banking Corp., Narpointe Bank and South States.

Taylor said he believes that once all the loans originated by Hometown Lenders were sold to investors, all of the debts owed to Flagstar and First Horizon were repaid, and the company “should have a surplus of funds at these banks.”

Although Hometown Lenders is no longer operating, he said the company anticipates filing “several actions” it believes “will generate funds that are sufficient to pay the allowed claims of priority and general unsecured creditors.”

In addition to claims by Flagstar and First Horizon, Heath Quick — whose LinkedIn profile identifies him as the owner of Hometown Lenders — has an unsecured claim of $7 million. Conrad Thompson, a former 1st Family Mortgage loan originator currently with Nations Lending Corp., has a $5 million claim.

Other major unsecured creditors include Freddie Mac ($3.4 million) the IRS ($943,000) and a long long list of vendors including ICE Mortgage Technology ($617,000), Rapidscale ($541,000), Certified Credit ($475,000), Equifax Workforce Solutions ($459,000), SimpleNexus ($400,000) and Black Knight ($289,000).

A meeting of creditors is scheduled for July 9 in Decatur in the U.S. Bankruptcy Court for Northern Alabama. Creditors have until Sept. 9 to oppose Hometown Lenders’ petition to discharge its debt in bankruptcy.

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Email Matt Carter

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