American Home shares plunge 45%
American Home shares plunge 45%
By Paul Taylor in New York and agencies
Copyright The Financial Times Limited 2007
Published: July 29 2007 22:57 | Last updated: July 30 2007 15:41
Trading in shares in American Home Mortgage Investment was halted after they fell by almost half following the lender’s revelation that it is delaying paying dividends and may delay payments on its preferred shares because banks demanded it put up more cash.
American Home’s announcement came late on Friday, as the Melville, New York-based mortgage lender revealed it had written down the value of its loan and security portfolios significantly.
The move by the lender represents one of the first indications that the crisis facing sub-prime mortgage lenders in the US is expanding to affect lenders like American Home whose borrowers tend to have higher ‘prime’ ore ‘near prime’ credit ratings. American Home specialises in ‘Alt-A’ mortgages for home buyers who can’t satisfy all the conditions for prime borrowing.
Shares in American Home fell more than 45 percent to $5.74 in electronic composite trading, but trading was stopped to allow news to disseminate.
The company said its moves were necessary “in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the Company’s balance sheet and overall liquidity.”
American Home Mortgage, described the disruption in the credit markets over the past few weeks as “unprecedented,” and said this had caused “major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities.”
The margin calls pose a significant problem for American Home Mortgage because it relies on short-term bank financing to temporarily fund the home loans it makes before the home loans are rebundled and sold to investors. If it does not have cash on hand to meet its banks’ demands, it may have to sell assets, find new financing, or restructure its debt.
It had $4.01bn of borrowings outstanding under its warehouse lines of credit as of March 31, and total liabilities of $19.3bn, according to its regular first-quarter filing with regulators. Its assets had a total book value of $20.6bn.
Rising mortgage rates and defaults this year have hurt mortgage lenders in the US, particularly sub prime lenders that lend to borrowers with less than perfect credit scores. So far, more than 50 lenders have filed for bankruptcy or sold themselves.
Earlier this month rumors that a bank had withdrawn one of American Home Mortgage’s credit facilities pushed the company’s shares 20 percent lower. American Home Mortgage told analysts that rumor was false.
The company said in late June that it would likely post a second-quarter loss after suffering credit losses from a type of loan it stopped making. It withdrew its earnings outlook for 2007, but said it expected losses to be contained. American Home Mortgage’s shares closed on Friday at $10.47, their lowest level since April 2003.
By Paul Taylor in New York and agencies
Copyright The Financial Times Limited 2007
Published: July 29 2007 22:57 | Last updated: July 30 2007 15:41
Trading in shares in American Home Mortgage Investment was halted after they fell by almost half following the lender’s revelation that it is delaying paying dividends and may delay payments on its preferred shares because banks demanded it put up more cash.
American Home’s announcement came late on Friday, as the Melville, New York-based mortgage lender revealed it had written down the value of its loan and security portfolios significantly.
The move by the lender represents one of the first indications that the crisis facing sub-prime mortgage lenders in the US is expanding to affect lenders like American Home whose borrowers tend to have higher ‘prime’ ore ‘near prime’ credit ratings. American Home specialises in ‘Alt-A’ mortgages for home buyers who can’t satisfy all the conditions for prime borrowing.
Shares in American Home fell more than 45 percent to $5.74 in electronic composite trading, but trading was stopped to allow news to disseminate.
The company said its moves were necessary “in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the Company’s balance sheet and overall liquidity.”
American Home Mortgage, described the disruption in the credit markets over the past few weeks as “unprecedented,” and said this had caused “major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities.”
The margin calls pose a significant problem for American Home Mortgage because it relies on short-term bank financing to temporarily fund the home loans it makes before the home loans are rebundled and sold to investors. If it does not have cash on hand to meet its banks’ demands, it may have to sell assets, find new financing, or restructure its debt.
It had $4.01bn of borrowings outstanding under its warehouse lines of credit as of March 31, and total liabilities of $19.3bn, according to its regular first-quarter filing with regulators. Its assets had a total book value of $20.6bn.
Rising mortgage rates and defaults this year have hurt mortgage lenders in the US, particularly sub prime lenders that lend to borrowers with less than perfect credit scores. So far, more than 50 lenders have filed for bankruptcy or sold themselves.
Earlier this month rumors that a bank had withdrawn one of American Home Mortgage’s credit facilities pushed the company’s shares 20 percent lower. American Home Mortgage told analysts that rumor was false.
The company said in late June that it would likely post a second-quarter loss after suffering credit losses from a type of loan it stopped making. It withdrew its earnings outlook for 2007, but said it expected losses to be contained. American Home Mortgage’s shares closed on Friday at $10.47, their lowest level since April 2003.
posted by Carlos T Mock @ 9:20 AM
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