Md. subprime lender files for Chapter 11

Columbia's Fieldstone has abrupt reversal

November 27, 2007|By Laura Smitherman | Laura Smitherman,SUN REPORTER

Fieldstone Mortgage Co., the Columbia subprime lender that largely shut down in the midst of the nationwide credit crunch, has filed for bankruptcy protection.

The company, which has whittled its work force from 1,000 employees to a skeleton crew of 25, reported it had more than $100 million in liabilities and less than that in assets, according to its Chapter 11 filing Friday with the U.S. Bankruptcy Court in Baltimore.

Some of Wall Street's biggest banks, including Morgan Stanley and Bear Stearns & Co. Inc., rank among its largest creditors.

Fieldstone Mortgage and its parent Fieldstone Investment Corp. were acquired in July by subprime mortgage investor Credit-Based Asset Servicing and Securitization LLC, known as C-BASS.

While the new owner acquired all of Fieldstone's outstanding stock, it did not take on its debt load through the transaction, Joel I. Sher, Fieldstone's bankruptcy attorney, said yesterday.

Fieldstone's reversal of fortune was abrupt. Founded in 1995, the company originated $5.5 billion in mortgage loans and operated in 50 states and the District of Columbia last year. But by August, the company had stopped originating loans.

Company officials blamed a sharp increase in delinquent mortgage payments and loan defaults, coupled with margin calls from Wall Street banks and a credit market downturn that limited access to capital.

Fieldstone Mortgage's board of directors decided to file for bankruptcy under Chapter 11 at a meeting Friday, according to court documents.

Morgan Stanley has a $38 million claim against the company, followed by a $23 million claim of Household International, a unit of HSBC Holdings PLC, and a $15 million claim of Bear Stearns, according to the bankruptcy filing.

C-BASS has agreed to lend Fieldstone up to $3.8 million to continue to meet payroll and business expenses, and Fieldstone has asked the court to approve the line of credit.

Sher said Fieldstone still has operational obligations, such as sending tax forms to mortgage holders, and it may have assets, including a proprietary software lending system, that could be sold to pay off debt.

"There is still a lot to be done even though we are no longer originating mortgages," Sher said. "We have a lot of claims that need to be paid, a lot of landlords that are seeking unpaid rent."

Sher said that company officials have not decided whether Fieldstone would be reorganized once the bankruptcy case is resolved. A C-BASS spokesman declined to comment yesterday on the bankruptcy.

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