American Home Mortgage tumbles on liquidity issues

By Jonathan Stempel

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.