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UPDATE 2-Aegis Mortgage files for Chapter 11 bankruptcy
August 13, 2007 / 8:40 PM / 10 years ago

UPDATE 2-Aegis Mortgage files for Chapter 11 bankruptcy

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By Jonathan Stempel

NEW YORK, Aug 13 (Reuters) - Aegis Mortgage Corp., a mortgage lender controlled by private equity firm Cerberus Capital Management, on Monday filed for Chapter 11 bankruptcy protection, a week after it stopped making home loans and fired 60 percent of its employees.

The Houston-based lender and several affiliates filed for protection from creditors with the U.S. Bankruptcy Court in Wilmington, Delaware. In a statement, Chief Executive Dan Gilbert said Aegis plans to “wind down” its operations as expeditiously as possible.

Aegis joined Melville, New York’s American Home Mortgage Investment Corp. AHMIQ.PK and Atlanta-based HomeBanc Corp. HMBN.PK among mortgage lenders to seek protection from creditors this month. Several others have filed for Chapter 11 this year, while dozens more have quit the industry.

Aegis has described itself as one of the 30 largest U.S. mortgage lenders. It made “prime” and “Alt-A” wholesale loans, and “subprime” retail and wholesale loans to residential borrowers who couldn’t qualify for the best rates.

In court papers, Aegis listed more than $100 million of assets, and estimated it owes more than $600 million to creditors. The latter included $178 million of unsecured debt owed to Madeleine LLC, a Cerberus affiliate that has an 80.9 percent equity stake, the papers show.

Aegis said it fired 782 of its 1,305 employees on Aug. 7, a day before Connecticut’s banking regulator ordered it to stop lending. The company said it is continuing to service loans.

“Extreme changes in market conditions, coupled with the rapid decline in the secondary mortgage market severely impacted (Aegis’) operations,” Chief Financial Officer Edward Robertson said in a court filing.

He said Aegis suffered “extraordinary increases” in defaults among borrowers who had just obtained loans, “substantial” margin calls from its own lenders, and growing demands that it buy back soured loans it had sold.

Home loan providers have been struggling with rising defaults, the refusal of investors to buy loans they make, and the unwillingness of many banks to extend credit.

New York-based Cerberus did not immediately return calls seeking comment.

According to the bankruptcy filing, Aegis’ largest unsecured creditors included affiliates of Morgan Stanley (MS.N) and Countrywide Financial Corp CFC.N, among others. Both claims are disputed, it said. (Additional reporting by Michael Flaherty)

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