Mortgage lender files for Chapt. 11
NEW YORK – American Home Mortgage Investment Corp. filed for bankruptcy protection on Monday, the latest casualty of a mortgage industry in distress.
The Melville, N.Y.-based company’s request for Chapter 11 bankruptcy protection – filed in bankruptcy court in Wilmington, Del. – caps a tumultuous 10 days for what had been the nation’s 10th-biggest home lender.
American Home Mortgage said it fell victim to “extraordinary disruptions” in the markets that support the mortgage industry. A cold housing market and a spike in payment defaults scared investors away from mortgage debt, including bonds and other securities backed by home loans.
With American Home Mortgage’s home loan portfolio rapidly losing value, its financial backers pulled the plug and the company ran out of cash.
American Home Mortgage’s 40 biggest creditors include virtually all the major names of Wall Street. At the top of the list are Deutsche Bank AG, JPMorgan Chase & Co. and Wilmington Trust Co. as trustee for others.
Deutsche Bank had no comment. JPMorgan Chase declined to comment on its exposure. Wilmington Trust has no credit exposure to American Home, a spokeswoman said.
JMP Securities analyst Steven C. Delaney said the reason American Home Mortgage went bankrupt in the first place – the exodus of buyers from the mortgage debt market – also means the company will have trouble selling its assets to raise cash right away.
“We are in a market now where value is a fleeting concept,” Delaney said. “The market today has just basically shut down. … They might not even find a buyer at any price today.”
In a statement, American Home said it lined up $50 million in debtor-in-possession financing from WL Ross & Co. LLC. WL Ross is led by billionaire Wilbur L. Ross Jr., who has rescued failed companies in the steel, coal, telecommunications and textile industries.
The company hired Stephen F. Cooper to be chief restructuring officer. Cooper also was chief restructuring officer for Enron Corp.
The stock market already had anticipated that the company was likely to go bankrupt. Its shares, which closed 2006 at more than $35, tumbled to 69 cents on Friday. The stock fell to 44 cents before trading was suspended Monday.
While bankrupt lenders carry ominous implications for the housing market and consumers hoping to take out a new mortgage, they do not affect mortgages already issued.
It is common for loans to change hands among lenders and banks. A bankrupt lender simply means financial institutions will likely buy the company’s loans as its assets are auctioned off; it does not put people’s homes into any peril.
American Home Mortgage joins more than 50 lenders in bankruptcy this year, though it is in some ways unique. It is bigger than most of the other lenders to go out of business so far, second in size only to New Century Financial Corp.
And, unlike New Century and most other bankrupt lenders, American Home Mortgage was not a “subprime” lender. Subprime lenders cater to home buyers with spotty credit histories. Almost none of American Home Mortgage’s $58.9 billion in home loans last year were to subprime borrowers.
Yet like other subprime lenders, American Home’s decline was quick. Its stock has lost roughly 97 percent of its value in the past 10 days.
Last week, the company said many of its lenders wanted their money back, and said it was unable to deliver as much as $800 million in promised mortgage loans. Days later, it laid off almost 90 percent of its 7,000 employees.
Shares of other mortgage lenders sank Monday as investors worried about the health of American Home Mortgage’s competitors. Countrywide Financial Corp.’s stock fell $1, or 4 percent, to $24. The stock touched as low as $23.64, its cheapest trade since 2003.
Shares of IndyMac Bancorp Inc. dropped $1.20, or 6.1 percent, to $18.46.
Shares of NovaStar Financial Inc., a subprime lender based in Kansas City, Mo., plunged $2.01, or 31.4 percent, to $4.39. The stock, which peaked at more than $260 in 2004, has never traded so cheaply.
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