American Home Mortgage tumbles on liquidity issues

NEW YORK Mon Jul 30, 2007 1:50pm EDT

A foreclosed house for sale is pictured in the Green Valley Ranch neighborhood in Denver, Colorado July 26, 2007. American Home Mortgage Investment Corp shares sank on Monday after the home loan provider announced ''major'' writedowns, delayed a dividend and said lenders were demanding it put up more cash. REUTERS/Rick Wilking

A foreclosed house for sale is pictured in the Green Valley Ranch neighborhood in Denver, Colorado July 26, 2007. American Home Mortgage Investment Corp shares sank on Monday after the home loan provider announced ''major'' writedowns, delayed a dividend and said lenders were demanding it put up more cash.

Credit: Reuters/Rick Wilking

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NEW YORK (Reuters) - American Home Mortgage Investment Corp AHM.N shares fell sharply on Monday after the company delayed its quarterly dividend, announced "major" write-downs, and said lenders were demanding it put up more cash.

Shares of American Home were down 39 percent, falling in premarket trading to $6.39 from Friday's close of $10.47. Trading was halted for news pending prior to the market open. The shares on Friday hit their lowest level since April 2003.

Late Friday, Melville, New York-based American Home said it was struggling from "unprecedented" disruption in credit markets. The announcement fed investor worries that bad loans are extending beyond "subprime" lenders to providers of home loans to borrowers considered to be good credit risks.

American Home specializes in prime and near-prime loans. It has, however, made many loans that allow borrowers to produce little documentation of income or assets. American Home, organized as a real estate investment trust, recently commanded a roughly 2.5 percent share of the U.S. mortgage market.

"Bankruptcy is not out of the question," said Matt Howlett, an analyst at Fox-Pitt Kelton Inc. in New York. "It needs to find a partner with alternative funding and hope the market turns around. It's going to be tough."

He added, "It's clear now we're in a liquidity crisis. Any loans that aren't pure prime are falling in value."

American Home did not immediately return calls seeking comment. It employed 7,409 people at year end, but laid off more than 400 this month, according to the Long Island newspaper Newsday.

The liquidity crisis gripping the mortgage funding markets has made it "very difficult for American Home to conduct an orderly flow of business," Lehman Brothers Inc. analyst Bruce Harting wrote. He downgraded American Home to "underweight" from "equal weight," and its price target to $5 from $17.

MARGIN CALLS

Dozens of mortgage lenders have curbed lending or quit the industry this year as home prices stalled, loan volumes sank, borrowing costs rose and defaults soared.

Countrywide Financial Corp CFC.N, the largest U.S. mortgage lender, on July 24 said delinquencies are spreading to more borrowers with good credit histories.

Late Friday, American Home said that to preserve liquidity it had delayed its 70-cents-per-share quarterly common stock dividend and expected to delay dividends on preferred stock.

"The disruption in the credit markets in the past few weeks has been unprecedented in the company's experience and has caused major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities," it said.

American Home relies on short-term bank financing to help fund home loans it makes. At the end of March, it had $4.01 billion in "warehouse" lines of credit, and $836.9 million of cash and equivalents.

Last month, it said it sold $125 million of convertible securities to the hedge fund Marathon Asset Management LLC. Marathon did not immediately return a call seeking comment.

Shares of rival mortgage lenders fell on Monday, including declines of as much as 13.1 percent for Impac Mortgage Holdings Inc IMH.N and 11.7 percent for IndyMac Bancorp Inc IMB.N. IndyMac reports quarterly results on Tuesday.

(Additional reporting by Svea Herbst-Bayliss and Dan Wilchins)

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