Mortgage giant Stearns Holdings filed for Chapter 11 bankruptcy Tuesday. The company, which said it planned to maintain operations, blamed the bankruptcy in part on increased interest rates, according to a USA Today report.
Stearns Holdings, which owns Stearns Lending, is the nation’s 20th largest mortgage lender. The company had accumulated an unsustainable amount of debt and got into financial trouble when borrowing costs began rising, according to USA Today. While Stearns cut its expenses by 40% through various measures including layoffs, it wasn’t enough to right the ship.
Stearns originates loans in all 50 states. Fifty-five percent of its business is wholesale. It also operates more than 100 retail branches, according to USA Today. Stearns sold its servicing rights to Freedom Mortgage Corp, last year.
The rise in interest rates in 2017 and 2018 “reduced the overall size of the mortgage market, increasing competition and significantly reducing market revenues,” Stephen Smith, president and chief financial officer of Stearns, said in a court filing.
Although interest rates have fallen in recent months, the 2017-2018 spike was too much for Stearns, USA Today reported. The company has faced pressure recently from its own lenders to stabilize its finances. Those warehouse lenders “began reducing advance rates, increasing required collateral amounts and increasing liquidity covenants, further contracting available working capital necessary to operate the business,” Smith said.
One warehouse lender cut Stearns off June 28, and another has announced plans to do so on July 15, according to USA Today.
Investment firm Blackstone, which acquired a 70% stake in Stearns in 2015, is injecting $60 million in cash into Stearns and giving the company a loan to help it navigate the bankruptcy, USA Today reported.