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American Home Mortgage Tumbles on Liquidity Issues

American Home Mortgage Investment 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.

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

The announcement late Friday evening reflects how liquidity and credit issues affecting subprime lenders are extending to companies that make home loans to borrowers considered to be good credit risks.

American Home, based in Melville, New York, specializes in prime and near-prime loans. It has, however, made many loans that allow borrowers to produce little documentation. Such loans are often considered riskier. The company 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 a call seeking comment.

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 writedowns of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities," the company said.

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

Dozens of mortgage lenders have quit the industry this year as home prices stalled, loan volumes sank and defaults soared.

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

James Ackor, an analyst at RBC Capital Markets in Portland, Maine, on Monday downgraded American Home to "sector perform" from "outperform."

"We think the company has sufficient liquidity to endure margin calls (but) acknowledge that liquidity is a mounting concern," he wrote. "Income-oriented investors should probably look elsewhere until further notice."

On July 19, rumors that a lender withdrew a credit facility pushed American Home shares down 20.8 percent. The company told analysts the rumor was false.

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