Mortgage Lender Says It Will Close

By ERIC DASH
Published: August 3, 2007
American Home Mortgage Investment, the troubled mortgage lender based in Melville, N.Y., will close today, making it the latest company to fail this year as loans made to home buyers, some even with solid credit histories, go bad.
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In a news release issued last night, American Home Mortgage said that that it would lay off all but 750 of its 7,000 employees “in light of liquidity issues resulting from disruptions” in the secondary mortgage market.
“Conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative,” Michael Strauss, the chief executive of American Home Mortgage said in a statement.
The company said it was shutting down all but its thrift and servicing businesses “to preserve the value of its remaining assets.”
On its Web site last night, the company said it was no longer taking any loan applications.
Calls to A.H.M. offices and e-mail messages were not returned last night.
While the problems facing A.H.M. were widely known, the speed of the company’s unraveling came as a surprise.
Last Friday, the company halted its quarterly dividend payment in a last-ditch effort to come up with capital. Several big investment banks issued margin calls on the debt that the company used to buy mortgage-backed securities, which included its loans and those made by other lenders, and it said it was unable to finance mortgages.
“The disruption in the credit markets in the past few weeks has been unprecedented in the company’s experience and has caused major write-downs of its loan and security portfolios,” A.H.M. said in securities filings. This “consequently has caused significant margin calls with respect to its credit facilities,” the filing said.
Reports of A.H.M.’s plans to shut down were first reported on the Web site for Newsday.
A.H.M. is the latest home lender to fall this year and comes as other companies in the mortgage business are sounding alarms.
Yesterday, Accredited Home Lenders Holding, a San Diego-based subprime mortgage company being acquired by Lone Star Funds, said that its own sale was in jeopardy and that bankruptcy was possible. Its shares lost more than a third of their value.
“Several of our competitors have recently stopped originating loans or sought protection under bankruptcy laws,” Accredited Home Lenders said in public filings. “We may suffer a similar fate.”
Meanwhile, Michael Perry, the chief executive of IndyMac Bancorp, another mortgage company, told employees it was making “very major changes” to its lending standards in what he suggested would be a prolonged disruption in the secondary mortgage markets. Unlike previous ones that lasted few weeks or so, IndyMac has “to be prudent and assume that this present disruption, which appears broader and more serious, might take longer to correct,” he wrote.
But the end of American Home came abruptly. Until recently, it was one of the fastest-growing and largest mortgage companies in the country. It specialized in adjustable-rate mortgages that in the first few years required borrowers to pay the interest or a minimum payment that was even smaller than that. It catered to homeowners with high credit scores and had an extensive network of retail branches, mortgage brokers and correspondent banks.
California, Florida, Illinois, Virginia and New York accounted for 46 percent of the loans American Home Mortgage held for investment at the end of March. A third of the mortgages were pay-option loans that allowed borrowers to make less than the interest payment on the loan by adding the deferred payments to the principal amount of the loan.
At the start of the year, A.H.M. seemed to defy the problems that were plaguing its industry. In the first three months, the company made $16.7 billion in home loans, up 27.2 percent from the same period in 2006.
And as recently as late June, the company said it expected to pay a dividend even though it would lose money in the second quarter because of rising delinquencies on its home loans and demands by investors that it buy back defaulted mortgages.
Those loans were popular with affluent borrowers and speculators during the housing boom, when rising home prices made them seem safe. Now, however, as home prices fall, defaults are rising.

(http://www.newyorktimes.com/)