Ownit Mortgage Solutions creditor committee seeks more documentation

By Reshmi Basu

New York, Aug. 2 - Ownit Mortgage Solutions, Inc.'s official committee of unsecured creditors asked a bankruptcy judge to order the company to produce documents in connection to the events leading up to its Chapter 11 bankruptcy filing, according to a Thursday motion filed with the U.S. Bankruptcy Court for the Central District of California.

According to the document, the committee is investigating whether to begin causes of action against the company and its third-party warehouse lenders, including Merrill Lynch Mortgage Capital, Inc. and JP Morgan Chase.

In 2003, an investment group comprised of private equity firm CIVC Partners, Dallas Capital and a group of private investors invested $30 million to acquire stock in the company. The company's name was changed to Ownit Mortgage Solutions from Oakmont Mortgage Inc.

In September 2005, Merrill Lynch acquired a minority stake in the holdings.

As part of its business and operations, Ownit originated loans and then sold substantially all of them to Merrill Lynch and other third parties.

The mortgage lender also funded its operations through two repurchase agreements with JP Morgan and Merrill Lynch. Under those agreements, the banks gave Ownit money to originate loans in exchange for interest on those loans.

In addition, the banks had the right to issue a margin call and request that more funds be posted to augment the value of the property that secured the loan.

On Dec. 1, 2006, Merrill Lynch made a margin call and demanded payment of $14.6 million, which caused an immediate crisis for the debtor's operations.

According to the filing, upon hearing of Merrill Lynch's margin call, JP Morgan informed the company that it would immediately stop providing financing.

On Dec. 7, the company ceased operations.

In the motion, the creditors said they believe there were lengthy negotiations between Ownit's holding board and Merrill Lynch to resolve the lender's financial situations but apparently those talks broke down.

"Understanding holdings' involvement in the debtor's pre-petition operations and negotiations is critical to understanding the facts and circumstances of the debtor's bankruptcy filing," the committee argued in the motion.

Ownit, an Agoura Hills, Calif., mortgage lender, filed for bankruptcy on Dec. 28, 2006. Its Chapter 11 case number is 06-12579.

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