(Bloomberg) — Starwood Capital-backed home lender Reverse Mortgage Funding LLC filed for Chapter 11 bankruptcy, the latest company to succumb amid a rapid run-up in mortgage rates.
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The company, which makes reverse mortgages, listed assets and liabilities of at least $10 billion each in its bankruptcy petition. Chapter 11 bankruptcy allows companies to keep operating while they work on a plan to repay creditors.
Reverse mortgages, a type of home loan geared toward seniors, allow borrowers to convert equity in their homes into cash without needing to sell or pay more monthly bills.
The mortgage industry is contending with a massive slowdown in business as sky-high rates deter new borrowers. Many homeowners locked in low rates during the last two years, and now they’re reluctant to give them up.
In addition to being a lender and servicer of more than 84,000 reverse mortgage borrowers, Reverse Mortgage Funding has been a frequent seller of securitized bonds backed by mortgages. That business came under strain recently as well: late last month, the company shelved a $290 million bond sale amid market volatility.
Starwood, led by Barry Sternlicht, owns most of Reverse Mortgage Funding through investment vehicles, court papers show.
“While a difficult decision, filing for Chapter 11 protection is necessary and appropriate for RMIT given the adverse trends in the mortgage industry,” a representative for Starwood said in a statement. “We will continue to work closely with management, our advisors and the company’s stakeholders on the best path forward for the company and our investors, consistent with our fiduciary responsibilities.”
The main case is Reverse Mortgage Investment Trust Inc., 22-11225, US Bankruptcy Court for the District of Delaware.
–With assistance from Dan Wilchins and Carmen Arroyo.
(Updates with Starwood comment in seventh paragraph.)
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