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American Home Pondering Liquidation

Loan activity halted, credit lines shut down

July 31, 2007


photo of Patrick Crowley
American Home Mortgage Investment Corp. has stopped funding loans and is on the brink of collapse.

The real estate investment trust, battered by market conditions and margin calls, said this afternoon it is unable to borrow funds under its warehouse lines to fund loans.

In a statement, the Melville, N.Y.-based company said it is "evaluating its strategic options -- including the orderly liquidation of its assets."

Trading of the company's shares was halted on the New York Stock Exchange yesterday after it disclosed the margin call crisis and that it would lay off another 228 people.

The lender provides mortgage loans under its Alt-A programs -- where borrowers with good credit don't provide full documentation on their income, assets or both.

The company at present "is unable to borrow on its credit facilities and was unable to fund its lending obligations yesterday of approximately $300 million," American Home said in the statement. "It does not anticipate funding approximately $450 to $500 million today."

Equity analyst Matthew Howlett, who follows the company for Fox-Pitt Kelton in New York, called the situation "precarious."

"Their survival rate now may be in the form of bankruptcy," Howlett told"They are being inundated with margin calls and they simply don't have the cash to meet the margin calls. Lenders are not allowing them to draw upon any lines of credit.

"It's a full-blown liquidity crisis."

In its statement American Home described the situation as a "hindering of access to its traditional credit facilities."

"Additionally, American Home's lenders have initiated margin calls in response to the decline in the collateral value of certain of the company's loans and securities held in its portfolio," it said. "The company has received and paid very significant margin calls in the last three weeks and has substantial unpaid margin calls pending. Further pressure on the company's liquidity presently exists due to its warehouse lenders effectively reducing, in this environment, their advance rate on new loans made by the company."

American Home said it was unable to fund $300 million of "lending obligations" Monday and does not anticipate coming up with the $450 million to $500 million it owes today. It has hired Milestone Advisors and Lazard, an investment banking firm, to evaluate strategic options in sourcing capital, "including the orderly liquidation of assets."

Howlett predicts the company will have a difficult time raising cash.

"There is not support for the types of loans on its balance sheet," he said. "They are too highly leveraged to meet the margin calls. It' is not a good outlook. They can't sell loans."

Howlett said a "white knight or third party" could bail the company out.

"But I don't' see a deal in this environment," he said.

The problems are rippling through the company. It's ABC Conduit operation is no longer funding loans -- according to mortgage brokers who have written in to And local offices of ABC are apparently indicating they can no longer fund loans, either.

Shares of American Home, traded under the symbol AHM, were down $9.20 Tuesday at $1.27. Shares had traded as high as $36.40 in December.

Patrick Crowley is a feature journalist and blogger for He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]

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