At American Home, it's one last day at the office
MELVILLE, New York
MELVILLE, New York (Reuters) - In some respects it was a normal summer Friday in this Long Island hamlet roughly 50 miles east of Wall Street. The weather was hot, a bit steamy. The weekend approached, and employees of American Home Mortgage Investment Corp. awaited their paychecks.
What was different was that the checks would be their last.
One day earlier the mortgage lender said it would fire nearly 7,000 employees, an exclamation mark to one of the biggest and fastest corporate collapses in the U.S. housing downturn. Friday would be the last day.
"This is my first stint in the mortgage field and probably my last," said Nick Vasilakis, 31, as he entered company's headquarters in shorts, a T-shirt and a baseball cap. He said he had worked at American Home for two months.
In a statement Thursday night, American Home confirmed it would cease most operations. It will slash its nationwide employee base to about 750 workers from the 7,409 it reported at the end of last year.
The collapse is widely expected to lead to a bankruptcy filing over the next few days. It is one of the most dramatic signs that the contraction in subprime lending industry, which make loans to people with weak credit records, has spread.
American Home, founded in 1987, by its own reckoning had become the 10th largest U.S. retail mortgage lender, originating $59 billion in loans last year.
"It was a meteoric rise and fall in 3-1/2 years," a company financial analyst over that period said in an interview outside the headquarters. He did not want to be identified for fear of jeopardizing his job hunt.
American Home lent mainly to people with good credit histories, yet offered loans with terms that were too easy.
Many were "Alt-A" mortgages, which fall between prime and subprime in quality, and about half were adjustable-rate loans, whose defining feature is an interest rate that can be adjusted upward -- sometimes to levels beyond the means of borrowers.
American Home shares traded around 78 cents in electronic trading, compared with the $36.36 they fetched as recently as December. They are likely to be worth nothing in a bankruptcy.
The meltdown was by some respects even faster than that of New Century Financial Corp, a subprime lender that took nearly two months from the time it advised all was not well to its bankruptcy filing.
While liquidity concerns began to mount in June and July, American Home did not hint it was strapped for cash until a week ago, when it said -- late on a Friday night, when most investors and employees were long gone for the weekend -- it would delay some dividends.
"Even Friday they were saying everything is fine, we have enough to stem the tide," Vasilakis said. But he added that rumors of a shutdown became rife the following Tuesday, and that for the last few days, little work got done.
American Home this week said that its own lenders cut it off, it faced escalating margin calls, and might liquidate assets. It also stopped taking loan applications.
The financial analyst said even the final downturn was haphazard. He said American Home recalled two e-mails about the shutdown that were riddled with misspellings, before finally getting it right.