American Freedom Mortgage, Inc. (AFM) was a

private Private or privates may refer to: Music * "In Private", by Dusty Springfield from the 1990 album ''Reputation'' * Private (band), a Denmark-based band * "Private" (Ryōko Hirosue song), from the 1999 album ''Private'', written and also recorded ...

S Corporation An S corporation (or S Corp), for United States federal income tax, is a closely held corporation (or, in some cases, a limited liability company (LLC) or a partnership) that makes a valid election to be taxed under Subchapter S of Chapter 1 of t ...

incorporated on February 2, 2001, according to the

Georgia Secretary of State The Secretary of state (U.S. state government), secretary of state of the U.S. state of Georgia (U.S. state), Georgia is an elected official with a wide variety of responsibilities, including supervising elections and maintaining public records. ...

, and headquartered in

Marietta, Georgia Marietta is a city in and the county seat of Cobb County, Georgia, United States. At the 2020 census, the city had a population of 60,972. The 2019 estimate was 60,867, making it one of Atlanta's largest suburbs. Marietta is the fourth largest ...

. AFM conducted business as a multi-state direct-to-

consumer A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...

correspondent lender and

mortgage broker A mortgage broker acts as an intermediary who brokers mortgage loans on behalf of individuals or businesses. Traditionally, banks and other lending institutions have sold their own products. As markets for mortgages have become more competitive, ...

specializing in the origination of

subprime In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpr ...

and

Alt-A An Alt-A mortgage, short for Alternative A-paper, is a type of U.S. Mortgage loan, mortgage that, for various reasons, is considered riskier than A-paper, or "prime", and less risky than "subprime lending, subprime," the riskiest category. For thes ...

mortgage loan A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners t ...

s. AFM also operated a wholesale mortgage lending division that originated loans via approved mortgage brokers and which used the fictitious name AFMI Funding. As a correspondent lender, AFM sold the mortgage loans on the open market to larger investors. According to an article in ''

The Wall Street Journal ''The Wall Street Journal'' (''WSJ''), also referred to simply as the ''Journal,'' is an American newspaper based in New York City. The newspaper provides extensive coverage of news, especially business and finance. It operates on a subscriptio ...

'', AFM originated loans for a fee, then sold them to investors such as HSBC Mortgage Services, Inc. and mortgage-finance company

Countrywide Financial Corporation Bank of America Home Loans is the mortgage unit of Bank of America. It previously existed as an independent company called Countrywide Financial from 1969 to 2008. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 bill ...

. The

CEO A chief executive officer (CEO), also known as a chief executive or managing director, is the top-ranking corporate officer charged with the management of an organization, usually a company or a nonprofit organization. CEOs find roles in variou ...

of AFM 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 St. Louis ( , sometimes referred to as St. Louis City, Saint Louis or STL) is an Independent city (United States), independent city in the U.S. state of Missouri. It lies near the confluence of the Mississippi River, Mississippi and the Miss ...

-based

American Equity Mortgage American(s) may refer to: * American, something of, from, or related to the United States of America, commonly known as the "United States" or "America" ** Americans, citizens and nationals of the United States of America ** American ancestry, p ...

, Inc., a leading

subprime mortgage In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpr ...

lender. On January 30, 2007, AFM and Burch both filed voluntary "no asset"

Chapter 7 Chapter Seven refers to a seventh Chapter (books), chapter in a book. Chapter Seven, Chapter 7, or Chapter VII may also refer to: Albums * Chapter Seven (album), ''Chapter Seven'' (album), a 2013 album by Damien Leith. * Chapter VII (album), ''Ch ...

bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the deb ...

petitions in the

United States Bankruptcy Court United States bankruptcy courts are courts created under Article I of the United States Constitution. The current system of bankruptcy courts was created by the United States Congress in 1978, effective April 1, 1984. United States bankruptcy ...

for the

Northern District of Georgia The United States District Court for the Northern District of Georgia (in case citations, N.D. Ga.) is a United States district court which serves the residents of forty-six counties. These are divided up into four divisions. Appeals from cases ...

. Both the AFM and Burch bankruptcy cases were subsequently converted to "asset" cases by the

Bankruptcy Trustee A trustee in bankruptcy is an entity, often an individual, in charge of administering a bankruptcy estate. Canada In Canada, a licensed insolvency trustee (LIT) is an individual or a corporation licensed by the official superintendent to hold ...

after

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

s for distribution to

unsecured creditor An unsecured creditor is a creditor other than a preferential creditor that does not have the benefit of any security interests in the assets of the debtor. In the event of the bankruptcy of the debtor, the unsecured creditors usually obtain a '' ...

s were discovered. The AFM bankruptcy case was assigned Case No. 07-61304-jem.

Subprime and Alt-A mortgage lending activities

At the beginning of 2006, AFM was a leading

and

mortgage correspondent lender and mortgage 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 FICO (legal name: Fair Isaac Corporation), originally Fair, Isaac and Company, is an American data analytics company based in Bozeman, Montana, focused on credit scoring services. It was founded by Bill Fair and Earl Isaac in 1956. Its FIC ...

credit score A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bu ...

s below 620 on a scale that ranges from 300 to 850. Subprime mortgage loans have a much higher rate of

default Default may refer to: Law * Default (law), the failure to do something required by law ** Default (finance), failure to satisfy the terms of a loan obligation or failure to pay back a loan ** Default judgment, a binding judgment in favor of eit ...

than prime mortgage loans and are priced based on the risk assumed by the lender. Alt-A loans are generally

prime A prime number (or a prime) is a natural number greater than 1 that is not a product of two smaller natural numbers. A natural number greater than 1 that is not prime is called a composite number. For example, 5 is prime because the only ways ...

(i.e., FICO credit scores of 680 or higher) or near-prime (i.e., FICO credit scores from 620 - 679) loans with some form of reduced documentation requirements (e.g., " stated income", "stated assets", "no income verification"). Although most home loans do not fall into this category, subprime mortgages proliferated in the early 2000s. Subprime mortgages totaled

US$ The United States dollar (Currency symbol, symbol: Dollar sign, $; ISO 4217, currency code: USD) is the official currency of the United States and International use of the U.S. dollar, several other countries. The Coinage Act of 1792 introdu ...

600 billion in 2006, accounting for about one-fifth of the U.S. home loan market.

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 2006, AFM held an

auction An auction is usually a process of Trade, buying and selling Good (economics), goods or Service (economics), services by offering them up for Bidding, bids, taking bids, and then selling the item to the highest bidder or buying the item from th ...

at its corporate

headquarters Headquarters (often referred to as HQ) notes the location where most or all of the important functions of an organization are coordinated. The term is used in a wide variety of situations, including private sector corporations, non-profits, mil ...

to sell its assets. In February 2007, HSBC Mortgage Services, Inc. commenced litigation against AFM in the

Northern District of Illinois The United States District Court for the Northern District of Illinois (in case citations, N.D. Ill.) is the federal trial court with jurisdiction over the northern counties of Illinois. It is one of the busiest federal trial courts in the Uni ...

based on assigned loans that resulted in early payment defaults, a repurchase event pursuant to the governing loan purchase agreement.HSBC Mortgage Services Inc. v. American Freedom Mortgage, Inc.
Court documents indicate

was also demanding repurchase of some loans it purchased from AFM. In March 2007, ''

'' reported many lenders, including HSBC Mortgage Services and Countrywide, were demanding AFM repurchase loans pursuant to repurchase provisions contained in loan purchase agreements. AFM's financial difficulties were exacerbated by advertising commitments that exceeded the company's ability to meet. David Hal Burch, Tamara Burch's husband, was the director of marketing for AFM and responsible for AFM's

advertising campaign An advertising campaign or marketing campaign is a series of advertisement messages that share a single idea and theme which make up an integrated marketing communication (IMC). An IMC is a platform in which a group of people can group their ide ...

References

{{Reflist

External links

Example of television ads

American Freedom Mortgage, Inc. listed as #21 on the Imploded Lender List
Financial services companies established in 2001 Financial services companies disestablished in 2007 Companies based in Cobb County, Georgia Defunct companies based in Georgia (U.S. state) Companies that filed for Chapter 7 bankruptcy in 2007 Companies that have filed for Chapter 7 bankruptcy 2001 establishments in Georgia (U.S. state) 2007 disestablishments in Georgia (U.S. state)

Subprime and Alt-A mortgage lending activities

Subprime mortgage crisis and bankruptcy

See also

References

External links