| NEW YORK
NEW YORK Feb 6 Mortgage Lenders Network USA
Inc., once the 15th-largest U.S. lender to people with weak
credit, plans to seek court permission to liquidate after a
surge in defaults and an "inadvertent" error in pricing a new
loan led to its bankruptcy, court papers filed on Tuesday
The firm filed for Chapter 11 protection from creditors on
Monday with the U.S. bankruptcy court in Delaware.
In a Tuesday filing, Daniel Scouler, the firm's chief
restructuring officer, said Mortgage Lenders had obtained an
agreement from one lender, Residential Funding Co., to provide
operating cash, but plans to ask the court to let it reject
leases and contracts and to sell machinery and office
"These funds, along with other assets of the debtor, will
be used to fund the debtor's plan of liquidation which the
debtor anticipates filing during the second quarter," Scouler,
a principal at Chicago restructuring firm Scouler Andrews LLC,
said in the filing.
Mortgage Lenders employs 267 people in Middletown,
Connecticut, where it is based, and at its servicing unit in
Wallingford, Connecticut, down from 1,780 employees nationwide
in November, Scouler said in the filing.
Mortgage Lenders had made $3.31 billion of subprime loans
in the third quarter of 2006, according to National Mortgage
A Mortgage Lenders spokesman said the privately-held firm
would not comment on the filing until later this week.
Subprime lenders are struggling with declining home sales
and prices, and with rising defaults. Many are seeking buyers.
Two sizable lenders -- California's Ownit Mortgage Solutions
Inc. and Texas' Sebring Capital Partners LLC -- closed in
In his filing, Scouler said a surge in consumer defaults in
the fourth quarter forced Mortgage Lenders to buy back more
loans it sold despite its recent tightening of lending
He also said Mortgage Lenders made a "significant mistake"
in pricing a new loan for more creditworthy borrowers. Because
of the error, the firm made $600 million to $700 million of
loans that it could sell to investors only at a loss, he said.
The error, he said in the filing, caused a funding "crisis"
as providers of "warehouse" lines of credit cut the company
In January regulators in at least nine states ordered
Mortgage Lenders to stop making loans and to obtain replacement
financing for unfunded loans, he said.
That same month, Wachovia Corp.'s WB.N banking unit won a
$7.65 million judgment against the company.
"These events in late January 2007 effectively foreclosed
any possibility for the debtor to salvage its loan origination
business," Scouler said in the filing.