Hat tip to Ijlal Inner Circle Member Ken Gould from Grand Rapids who sent this breaking story in with a funny email (I was at lunch when I saw this and it made my day. You better get some of those ICE Road Trucker Guys back from Alaska to carry the infiles to Trott and Trott for this motherload. LOL; Ken)
New Century was the first BIG DOG to fall. There have been some other small lenders who have quitely closed shop. This is another big guy who was famous in the lending industry for doing STATED or NO DOC loans.
This is very big news not just for Michigan real estate investors who are doing short sales in Michigan but also the pressure it will exert on other lenders operating in that particular sub-prime / STATED income category. Expect bigger discounts on Short Sales in the coming months all across the sub-prime / STATED income category and a trickle down effect on REO's being sold by American Home Mortgage in Michigan.
Here is the Reuters story:
American Home Mortgage's future uncertain
Shares crumble 87% after troubled prime mortgage lender said it may liquidate, retains investment banks to help it consider options.
July 31 2007: 3:00 PM EDTNEW YORK (Reuters) -- American Home Mortgage Investment Corp., 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 (Charts), 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.
Margin callsIn 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.
Prime borrowers catching subprime illsAmerican 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.
More traditional lenders such as Countrywide Financial (Charts, Fortune 500) and banks such as Wachovia (Charts, Fortune 500) and Wells Fargo (Charts, Fortune 500) have been hurt by weakness in the housing market caused in part by subprime loans.
