U.S. News

Alt-A Lender American Home Mortgage Hit by Downgrades


At least five Wall Street analysts downgraded shares of American Home Mortgage Investment after the home lender said its mortgage loans are fetching lower prices from investors.

While it has been well publicized that investors are shying away from "subprime" mortgage debt -- or home loans to people with bad credit -- some people hoped the weakness would stay contained in the subprime market.

On Friday, the Melville, N.Y.-based mortgage lender said it tried in March to sell a pool of Alt-A home loans, which carry better credit than subprime loans and worse credit than prime. Far fewer bidders offered materially lower prices for the loans, the company said.

Because of a cooling market for mortgage debt and a spike in payment defaults among Alt-A borrowers, American Home Mortgage Investment said it now expects profit of $3.75 to $4.25 per share this year. The company, which operates as a real estate investment trust, previously predicted $5.40 to $5.70 per share in 2007 profit.

Analysts from Citigroup, Friedman Billings Ramsey, Lehman Brothers, Keefe, Bruyette & Woods and Bear Stearns cut their investment ratings on American Home Mortgage Investment's stock before Monday's trading began.

Several others cut their price targets on American Home Mortgage Investment's shares, anticipating lower profit margin when the company sells its loans. Fox-Pitt Kelton analyst Matthew Howlett, for example, cut his price target to $21 from $31.

The shares have traded in a range of $19.51 and $36.96 in the past year.