American Home Mortgage's Lenders Cut Off Credit; May Liquidate Assets

American Home Mortgage Investment Corp (AHM) said on Tuesday it can no longer fund home loans and may liquidate assets, putting its survival in doubt and sending its shares plummeting 90 percent.

The development was the latest sign the U.S. housing slump is broadening, as worries about credit quality and defaults spread beyond subprime lenders, which lend to people with weaker credit, to lenders that make higher-quality loans.

American Home, a large mortgage provider, said its lenders cut off access to credit, leaving it unable on Monday to fund $300 million of loans it agreed to make. It expected to be unable to fund $450 million to $500 million of loans on Tuesday.

Melville, New York-based American Home hired Milestone Advisors and Lazard to help evaluate options and advise on "the sourcing of additional liquidity, including the orderly liquidation of its assets."

American Home offers "Alt-A" mortgages, which fall between prime and subprime in quality, and recently held a roughly 2.5 percent share of the U.S. mortgage market. Last Friday, it delayed a common stock dividend and announced "major" write-downs.

"The chances are pretty high that the company either goes bankrupt or materially restructures, leaving little value for shareholders," said Bose George, an analyst at Keefe Bruyette & Woods Inc. in New York.

"The business model of non-bank, mortgage lenders is challenging, and may be unstable, because they are so dependent on the willingness of the capital markets to fund operations," he added.

Mary Feder, a spokeswoman for American Home, did not respond to an e-mail seeking comment. Her telephone mailbox did not accept messages.

American Home shares closed down $9.43 at $1.04 on the New York Stock Exchange. They traded as high as $36.36 last December 6.


The news helped cause mortgage and other finance companies to dominate the list of the largest Big Board percentage decliners.

"It is raising concerns about the whole mortgage market because American Home really didn't do anything in subprime," said Sam Rahman, a portfolio manager at Baring Asset Management Inc.

NovaStar Financial Inc (NFI.N), a subprime lender, fell 25.4 percent. Mortgage insurers MGIC Investment Corp (MTG.N) and Radian Group Inc (RDN.N) fell a respective 14.9 percent and 16.1 percent after they said they might write off a combined $1.03 billion invested in a joint venture related to subprime mortgages.

Many U.S. mortgage providers have struggled with a housing slump that has caused home prices to stall, borrowing costs to rise and defaults to soar. Dozens have tightened lending policies, quit the industry, or gone bankrupt.

American Home relies on bank financing to help fund home loans. In its statement, American Home said it could not borrow from its credit lines and had "substantial" unpaid margin calls pending to lenders even after meeting "very significant" calls in the last three weeks. The company ended March with $836.9 million of cash and equivalents.

According to its most recent quarterly report, American Home had obtained financing from several lenders. Among them were Bank of America Corp (BAC.N), Bear Stearns Cos (BSC.N), Credit Agricole SA's Calyon affiliate and UBS AG


A UBS spokeswoman declined to comment. The others did not immediately return calls.

If it sought bankruptcy protection, American Home would join New Century Financial Corp. and several other home lenders in seeking protection from creditors this year.

Most of those lenders, however, catered to subprime borrowers, rather than borrowers considered better credit risks.