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American Home Mortgage And Margin Calls: Is C-Bass Next?

Tuesday, 31 Jul 2007 | 3:15 PM ET

So it’s only a few hours after I blogged about C-Bassand American Home Mortgage is providing a crystal ball. Shares of AHM are down 87% after the company said it just can’ fund all those home loans and may have to liquidate its assets.

It’s the margin calls, same as C-Bass. The lenders say the loans and securities the company was holding as collateral to back the borrowing aren’t worth what they once were, and that’s why they’re making the calls. AHM says the calls they’ve paid are “very significant” but they still have “substantial” unpaid calls hanging out there.

C-Bass was kind enough to tell us just how much their calls were worth:

“At the beginning of 2007, we had $302 million of liquidity, representing greater than 30% of our capital of $926 million. During the first 6 months of 2007, a very tumultuous time in the subprime mortgage market, C-BASS' disciplined liquidity strategy enabled the company to meet $290 million in lender margin calls. During the first 24 days of July alone, C-BASS met an additional $260 million of margin calls, representing greater than a 20% decline in the lender's value. We believe that nothing justifies this substantial amount of margin calls received in such a short period of time, particularly as there has been no change in the underlying fundamentals of our portfolio.”

$260 million in 24 days. As my five year old would say: “Owchie.” AHM is looking to liquidate, while C-Bass appears to standing its ground, claiming the margin calls are unfounded. We’ll see.

Questions? Comments? RealtyCheck@cnbc.com

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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