Industry Subprime Mortgage Lending and Alt-A Mortgage Lending
Key people Tamara L. Burch, co-founder, President and CEO
DeeAnn R. Myers, co-founder, Vice-President and COO
American Freedom Mortgage, Inc. (AFM) was a private S Corporation formed in February of 2001 and headquartered in Marietta, Georgia. AFM conducted business as a multi-state direct-to-consumer correspondent lender and mortgage broker specializing in the origination of subprime and Alt-A mortgage loans. AFM also operated a wholesale mortgage lending division that originated loans via approved mortgage brokers and which used the fictitious name AFMI Funding. As of January 1, 2006, the CEO was Tamara Burch and the COO was DeeAnn Myers. Prior to co-founding AFM, both Burch and Myers were loan originators with St. Louis, Missouri-based American Equity Mortgage, Inc., a leading subprime mortgage lender.[1]
According to a Wall Street Journal article, AFM originated loans for a fee, then sold them to investors such as HSBC Mortgage Services, Inc. and mortgage-finance company Countrywide Financial Corporation. [2]
On January 30, 2007, AFM and Burch both filed voluntary "no asset" Chapter 7 bankruptcy petitions in the United States Bankruptcy Court for the Northern District of Georgia.[3]
[edit] Subprime mortgage lending activities
At the beginning of 2006, AFM was a leading subprime and Alt-A mortgage correspondent lender and broker in the United States. Subprime mortgage loans are riskier loans in that they are made to borrowers unable to qualify under traditional, more stringent criteria due to a limited or blemished credit history. Subprime borrowers are generally defined as individuals with limited income or having FICO credit scores below 620 on a scale that ranges from 300 to 850. Subprime mortgage loans have a much higher rate of default than prime mortgage loans and are priced based on the risk assumed by the lender. Alt-A loans are generally prime loans with some form of reduced documentation requirements but may also include loans to borrowers with marginal, but not subprime, credit.
Although most home loans do not fall into this category, subprime mortgages proliferated in the early 2000s. Subprime mortgages totaled US$600 billion in 2006, accounting for about one-fifth of the U.S. home loan market.[4]
[edit] Subprime mortgage crisis and bankruptcy
As with many subprime mortgage lenders, AFM experienced financial difficulties in 2006 due to repurchase demands from investors and diminished funding capacity because of an increase in non-performing loans. In August of 2006, AFM held an auction at its corporate headquarters to sell most of its assets.[5] In February of 2007, HSBC Mortgage Services, Inc. commenced litigation against AFM in the Northern District of Illinois based on assigned loans that resulted in early payment defaults, a repurchase event pursuant to the governing loan purchase agreement.[6] The financial difficulties and commenced and threatened litigation culminated in a Chapter 7 bankruptcy filing for both AFM and Burch on January 30, 2007.
After resigning as COO, Myers incorporated Skystone Mortgage Group, Inc. in May 2006, but announced in March 2007 that it was no longer accepting loan applications. On August 6, 2007, Skystone and Myers both filed voluntary "no asset" Chapter 7 bankruptcy petitions, as did AFM and Burch. David Hal Burch, Tamara Burch's husband who was responsible for the AFM advertising campaigns, was listed as a Skystone employee.
In March of 2007, the Wall Street Journal reported that many lenders have demanded AFM repurchase loans pursuant to repurchase provisions contained in loan purchase agreements. [2] Court documents indicate Countrywide Financial Corporation was also demanding repurchase of some loans it purchased from AFM.
As of July 2007, while both the AFM and the Burch bankruptcy cases are pending, Burch was operating a net branch for Admiral Lending LLC, doing business as TheEquityNetwork.com.
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