Hometown Lenders files for bankruptcy, blames interest rates

Embattled mortgage company Hometown Lenders filed for Chapter 11 bankruptcy protection Monday, revealing debts of at least $40 million to parties including lenders and vendors. 

CEO Billy Taylor in a case filing blamed his firm's downfall on rising interest rates that decimated borrower and investor demand for home loans. Hometown's revenue fell by 70% in recent years as it laid off employees and shuttered branches. It shut down business operations last October. 

"Despite making these cuts, however, the Debtor was unable to overcome the unforeseen adverse market conditions in the mortgage lending industry," wrote Taylor in a declaration to the U.S. Bankruptcy Court for the Northern District of Alabama. 

The business, which also operated under the 1st Family Mortgage brand, said in its Chapter 11 filing that it had funds available for distribution to unsecured creditors. It lists between 100 to 199 creditors, and both estimated assets and estimated liabilities between $10 million to $50 million. Flagstar Bank holds the largest unsecured claim, a $20.1 million sum stemming from a lawsuit over Hometown's alleged default on a warehouse line of credit. 

Two former Hometown managers have unsecured claims of $5 million and $3.5 million, while a father-son duo are owed a combined $1.25 million for their propping up of an Illinois office. Branch managers a year ago told National Mortgage News they were paying rent and utilities to cover for the then retail lender's struggles. 

Other significant debts include $3.5 million to warehouse lender First Horizon Bank, $3.4 million to Freddie Mac and $943,000 to the Internal Revenue Service. The defunct shop owes six-digit debts to prominent industry vendors, and $300,000 and $250,000 sums to ESPN and the PGA Tour, respectively. 

The company, organized in 2000, grew to be the largest mortgage banker in Alabama before spreading nationwide by the time of the refinance boom in 2021. At its peak, Hometown counted over 1,400 workers across 120 offices, and 1,500 loan closings per month in the first quarter of 2022.

Hometown faltered along with the industry and eventually closed less than 100 loans per month in June 2023. At that time, it had fewer than 400 employees across 40 offices. Days before its complete shutdown, Hometown announced a transition from a retail to broker model. 

Besides missed tax payments, several states previously revoked Hometown's origination licenses for failing to pay mortgage insurance premiums on government-insured home loans. Employees told National Mortgage News of chaos at the company last June, alleging missing money in deferred compensation counts, missing 401K matches and unfunded health insurance among other issues. 

An attorney who filed the petition on behalf of Hometown didn't return a request for comment Tuesday afternoon. 

Taylor is the lender's sole shareholder. A status hearing in the bankruptcy is scheduled for Wednesday morning in an Alabama federal court, while creditors are scheduled to meet July 9.