Fieldstone Files Chapter 11 Bankruptcy

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After unsuccessful attempts to resolve its outstanding liabilities of more than $100 million, Fieldstone Mortgage Co. filed for Chapter 11 bankruptcy today seeking to restructure its current operations. (hat tip Bill) Fieldstone’s biggest debtors are the large Wall Street firms that provided large amounts of lending capital to companies like Fieldstone in order to fund and sell loans in the secondary market. That was all fine and dandy until the secondary market dried up resulting in large losses for the company as well as margin calls from its debtors on funds borrowed.

From the Baltimore Sun:

Among its largest creditors are Morgan Stanley, seeking $38.5 million, and Bear, Stearns & Co., seeking $15.3 million, documents show.

In an emergency motion filed with the bankruptcy court, Fieldstone details how slowing home price appreciation and rising interest rates kick-started a surge in mortgage delinquencies beginning in late 2006. This contributed to mortgage lenders reaping lower premiums on sales of loans in the secondary market. The lower valuations in the secondary market in turn led to mortgage lenders “receiving unprecedented margin calls from their secured creditors,” documents show.

Fieldstone had already ceased operations in August after it could no longer sell loans on the secondary market. The Fieldstone Investment Corp. (the parent company) had been purchased by Credit-Based Asset Servicing in July.

For more read Housing Wire.