U.S. News

American Home Can't Fund Loans, May Liquidate Assets


American Home Mortgage Investment, a large U.S. mortgage provider, said on Tuesday it can no longer fund home loans and may liquidate assets, putting its survival in doubt.

The Melville, New York-based real estate investment trust retained Milestone Advisors and Lazard to help it evaluate options and advise "with respect to the sourcing of additional liquidity including the orderly liquidation of its assets."

Shares of American Home , which had not traded since Friday, sank $9.15, or 87.4 percent, to $1.32, after the announcement. They traded as high as $36.36 in December.

American Home's announcement shows how concerns about credit quality and homeowner defaults have spread beyond subprime lenders, which lend to people with weaker credit, to lenders that make higher-quality loans.

"The chances are pretty high that the company either goes bankrupt or materially restructures, leaving little value for shareholders," said Bose George, an analyst at Keefe Bruyette & Woods Inc. in New York.

"The business model of non-bank, mortgage lenders is challenging, and may be unstable, because they are so dependent on the willingness of the capital markets to fund operations," he added.

Mary Feder, a spokeswoman for American Home, did not immediately return an e-mail seeking comment. Her telephone mailbox was not accepting messages.

The company also did not return calls on Monday, after it delayed paying a scheduled common stock dividend and announced "major" writedowns.

Many U.S. mortgage providers have struggled with a housing slump that has caused home prices to stall, borrowing costs to rise and defaults to soar. Dozens have tightened lending policies, quit the industry, or gone bankrupt.

American Home has specialized in prime and near-prime loans. It has, however, made many loans that allow borrowers to produce little documentation of income or assets. It recently commanded about 2.5 percent of the U.S. mortgage market.

Faces 'Significant' Margin Calls

In its statement, American Home said it was unable to fund $300 million of loans on Monday and did not expect to fund $450 million to $500 million on Tuesday.

It also said it could not borrow from its credit lines, and had "substantial" unpaid margin calls pending to lenders, even after meeting "very significant" calls in the last three weeks.

American Home relies on bank financing to help fund home loans. At the end of March, it had $4.01 billion in "warehouse" lines of credit, and $836.9 million of cash and equivalents.

If it sought bankruptcy protection, American Home would join New Century Financial Corp and several other home lenders in seeking protection from creditors this year.

Most of those lenders, however, catered to subprime borrowers, rather than borrowers considered better credit risks.