American Home's explosive growth capped by bankruptcy
New York-based lender ranked in top 10 nationwide
Tuesday, August 07, 2007
Inman News
American Home Mortgage Investment Corp., a publicly traded real estate investment trust that grew rapidly during the housing boom to become the nation's 10th-biggest residential mortgage lender, has filed for Chapter 11 bankruptcy protection.
American Home employed about 7,500 workers at more than 550 loan production offices in 47 states and the District of Columbia. The New York-based lender funded 196,000 mortgage loans in 2006 totaling $58.9 billion -- more than double the $23.1 billion in loan production for 2004 -- for a 2.2 percent market share, according to the company's last annual report to investors.
The company achieved this growth in part by acquiring smaller mortgage originators, and retaining and growing their loan production offices while eliminating centralized support operations and associated costs.
But American Home was forced to close its doors when creditors who funded its loans withdrew their support. American Home stopped taking mortgage applications on Aug. 1, and fired its entire mortgage loan production staff Aug. 3, but maintains its thrift and loan servicing businesses.
American Home said it has secured $50 million in financing to manage the wind down of the company. But because it has stopped originating mortgages, it is "highly unlikely" that American Home will be able to pay its creditors in full, "and that it is realistic to conclude that ultimately there will be no shareholder equity value remaining," the company said.
Unlike some other troubled lenders, American Home was not a subprime lender. The average FICO score for loans originated in 2006 was 716.
But about half of the company's 2006 loan production was in the form of adjustable-rate mortgages. Conforming fixed-rate loans made up just 23.8 percent of total originations in 2006, and Alt-A loans represented 8.9 percent of all loans.
Alt-A mortgages typically involve borrowers whose credit history may be within Fannie Mae's or Freddie Mac's guidelines, but with loan characteristics such as higher loan-value ratio or limited documentation of income or assets that make them non-conforming.
Like most "private label" lenders, American Home sold most of the mortgages it originated to investors in the secondary market, holding just $6.3 billion in loans in its own investment portfolio at the end of 2006, and $9.3 billion in mortgage-backed securities. Nearly 94 percent of the MBS that American Home held at the end of 2006 was AAA or "agency eligible" for purchase by Fannie Mae and Freddie Mac.
But American Home warned investors that about half the loans the company sold were to three large national financial institutions -- Countrywide Financial Corp., Deutsche Bank and Wells Fargo Bank N.A. -- two of which competed with the company for originations.
"If these financial institutions or any other significant purchaser of our loans cease to buy our loans and equivalent purchasers cannot be found on a timely basis, then our business ... could be harmed," the company said in its last annual report.
In a July 31 Securities and Exchange Commission filing, American Home reported that the company has "received and paid very significant margin calls" from creditors due to a decline in the collateral value of some of its loans. The company's warehouse lenders reduced their advance rate on new loans, leaving American Home unable to fund hundreds of millions in loans, the company said.
American Home creditors that sought to terminate their agreements with the lender included Deutsche Bank AG, UBS AG, Lehman Brothers Special Financing Inc., ABN AMRO Bank N.V., and Liquid Funding, Ltd.
Other lenders reporting problems funding loans this week include Atlanta-based HomeBanc Corp., which said Tuesday it was unable to borrow on its credit facilities and intended to exit the mortgage loan origination business.
HomeBanc said Countrywide Financial Corp. will take over some assets related to its retail loan origination operations, including up to five branches located in Georgia, Florida and North Carolina, assuming the leases related to those branches. HomeBanc said Countrywide will offer jobs to nearly all of its retail loan originators.
National City Corp. has stopped taking new loan applications or opening lines of credit in its wholesale home equity unit, while Aegis Mortgage Corp. has stopped accepting loan applications and says it can't meet all existing funding obligations. Impac Mortgage Holdings Inc. said it has stopped making Alt-A loans, but will continue to make prime loans.
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