The reasons may be different, but mortgage loan originator bankruptcies are making headlines for the first time since the run-up to the 2008 financial crisis. Climbing interest rates on top of high home values have resulted in a sharp drop in origination volume on the heels of rapid growth and expansion, creating financial distress and uncertainty. At least one residential mortgage lender has filed for bankruptcy, while several others have ceased operations or announced massive layoffs.
Over a decade ago, courts first examined whether certain Bankruptcy Code amendments provided a path for parties providing liquidity to mortgage loan originators, traditionally called “warehouse providers,” to exercise their contractual rights despite an originator’s bankruptcy filing. Although some courts ultimately
blessed the applicability of these amendments, continued difficulties likely can be expected — at least as a practical matter — in the enforcement of rights under covered agreements.