Earnings from the final quarter of last year will be moved to the first quarter of this year, American Home Mortgage Investment Corp. announced today. The news was offset somewhat, however, by record loan production.
Loan securitization revenue of approximately $71.4 million from the fourth quarter 2004 will be reversed and recognized in the first quarter of 2005, the Melville, N.Y.-based company said -- blaming the faulty accounting on embedded derivatives contracts.
"The amount of retained securities created during the fourth quarter of 2004 that were benefited by embedded derivatives contracts was approximately $97.6 million, or 2.8% of the securitization's principal of $3.5 billion," the real estate investment trust said in the announcement. "The $97.6 million of securities were sold during the first quarter of 2005, and consequently the entire fourth quarter 2004 securitization qualified for sale treatment under SFAS 140 in the first quarter of 2005."
American Home Chairman and CEO Michael Strauss described the restatement as disappointing, and said, "It is important to note, however, that our company's fundamental economic condition, and particularly the market value of the securities we hold, is not affected by this change."
First quarter production was reported at $7.3 billion, up from $6.7 billion the prior quarter and $4.4 billion the prior year. American Home said it achieved "record net interest income and loan production during the first quarter of 2005."
The company also said it had been classifying sources and uses of cash associated with loans that will eventually be securitized as "investing activities." It will now classify them "as sources or uses of cash from operating activities regardless of whether the securities will be retained."
"Consequently, only sources and uses of cash associated with market acquired securities which are classified as available for sale or held to maturity will be included in sources and uses of cash from investing activities," the announcement said.
American Home said it will strengthen weaknesses in accounting for securitization and classifying sources and uses of cash.