American Home Mortgage Faces Liquidity Crisis; Is Bankruptcy Next?

American Home Mortgage Investment Corp. issued a formal statement this morning confirmed what most in the industry had known since yesterday — that the lender was facing a liquidity crisis that had forced the company to cease funding new loans. In a press release, the company said it is facing what it called “unprecedented” liquidity problems:

American Home Mortgage noted that this disruption has fueled concerns in the market regarding credit risk, causing many market participants to suspend the purchase of loans from a variety of originators including American Home. Accordingly, American Home is currently experiencing 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. The Company has received and paid very significant margin calls in the last three weeks and has substantial unpaid margin calls pending. [emphasis added] 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.

Perhaps most ominous here is the disclosure that the company yet has “substantial unpaid margin calls” — yet another example of how a liquidity crisis feeds on itself. Numerous sources are reporting today that the company is on the verge of bankruptcy (the Associated Press for one, and another story from Reuters citing AHM’s non-payment of trust preferred securities due on July 30). Numerous sources had suggested to me yesterday that American Home had ceased funding loans as of 10am yesterday afternoon, something the company confirmed as well in its media release:

Based on the foregoing, 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. It does not anticipate funding approximately $450 to $500 million today.

Concerns over a pending bankruptcy would seem to have derailed a potential exit route for the company as well, with National Mortgage News reporting yesterday that IndyMac Bank — a potential suitor for AHM’s retail mortgage origination business — had broken off its talks with the Melville, NY-based lender over bankruptcy worries. After the company’s announcement, the NYSE opened the company’s shares for trading, where as of this post the stock had dropped nearly 90 percent to $1.11 per share.

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