American Home Mortgage
Says It Will Close

ERIC DASH / New York Times 3aug2007

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.

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.

source: 3aug2007

Lenders Broaden Clampdown
on Risky Mortgages

Tightening Standards Could
Worsen Slump In the Housing Market

JAMES R. HAGERTY and RUTH SIMON / Wall Street Journal 3aug2007

Jittery home-mortgage lenders are cutting off credit or raising interest rates for a growing portion of Americans, extending well beyond the market for subprime loans for people with the weakest credit records.

This worsening credit crunch threatens to put further pressure on the housing market, where prices are flat to declining in much of the country.

Lenders say they are being forced to raise interest rates and stop offering certain loans because mortgage-bond investors have lost their appetite for a broad range of mortgages considered risky. That includes those dubbed Alt-A, a category between prime and subprime that often involves borrowers who don't fully document their income or assets, or those buying investment properties. Notably, American Home Mortgage Investment Corp., which stopped making loans earlier this week, said late yesterday it would cease most operations, slashing its work force to about 750 from more than 7,000.

"It is with great sadness that American Home has had to take this action," Chief Executive Michael Strauss said in a statement. "Unfortunately, the 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."

Lenders are tightening standards and "raising rates like crazy," said Melissa Cohn, chief executive of Manhattan Mortgage, a New York mortgage broker. She said Wells Fargo & Co. is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week. (Jumbo loans are those too large to be sold to government-sponsored mortgage investors Fannie Mae and Freddie Mac.) A Wells spokesman said rates are lower on loans made directly by the bank than on those through brokers.

The market for mortgage-backed securities is "very panicked," Michael Perry, chief executive of IndyMac Bancorp Inc., another big lender, said in a message on the lender's Web site yesterday.

Seeking to soothe the market, Countrywide Financial Corp., the nation's largest home lender, said it had plenty of funds available to weather the industry's troubles.

The fright among investors is forcing lenders to go back to more-conservative practices that were the norm before the housing boom of the first half of this decade. Many now are focusing on loans to borrowers who are willing to document their income, can make a down payment of at least 5% and have a history of paying bills on time.

Alt-A loans accounted for about 13% of U.S. home loans granted last year, according to Inside Mortgage Finance, and subprime loans about 20%. Industry executives have said subprime lending is likely to shrink by more than 50% this year, and now much of the Alt-A market is vanishing too.

This credit squeeze "will further crimp the effective demand for housing, and will make the late summer home-sales season even worse than the dismal spring season," said Thomas Lawler, a housing economist in Vienna, Va.

Tom Lamalfa, managing director of Wholesale Access, a mortgage-research firm in Columbia, Md., expects that half or more of the market for no- and low-documentation loans will disappear.

Some people use so-called low-doc loans to avoid paper work or because they are self-employed and have trouble showing a steady stream of income. But low-doc mortgages also can be used by people exaggerating their incomes.

National City Corp., another large lender, said yesterday that it is suspending originations of stated-income loans, which don't require the borrower to verify income. Wachovia Corp. said it had stopped making Alt-A loans through brokers, joining a trend among big lenders to rely less on outsiders to arrange mortgages. Wells Fargo told brokers this week that it was making "day-to-day" decisions on the pricing and availability of Alt-A loans amid reduced investor demand.

Several dozen lenders have gone out of business in the past six months, and others are teetering. Shares of Accredited Home Lenders Holding Co. fell 35% yesterday on the Nasdaq Stock Market after auditors said its "financial and operational viability" is uncertain if a pending merger isn't completed.

source: p.A3 3aug2007