Friday, August 31, 2007

It’s official: Lone Star wants to amend tender offer

Yesterday, Lone Star delivered a letter to Accredited Home Lenders Holding Co.’s Board of Directors, which essentially asked for a substantial price cut on the company. It is clear to anyone that Accredited is worth well below $15.10 a share, and its price is declining with each passing day. Therefore, the new price Loan Star is offering is $8.50, “a premium of 35% over the closing price of the Company Common Shares on August 30, 2007”, according to the letter. Still a good price I would say, especially knowing that Lone Star could simply walk away from the deal – leaving the $12 million break up fee behind and after lengthy court proceedings, that is.

And as I read reports on home prices, I can’t help wondering what’s going on. Not that a decline of 0.1% vs. an increase of 0.1% makes much difference, but the way they present data is quite confusing. OFHEO (the Office of Federal Housing Enterprise Oversight, the regulator of Fannie Mae and Freddie Mac) came up with a 0.1% increase in home prices in Q2, and growth of 3.2% year-over-year, the slowest in a decade. Naturally, OFHEO Director James Lockhart didn’t fail to mention that “significant price declines appear localized in areas with weak economies”, but I would say these numbers are too vague because of the way they’re calculated. An index compiled by Standard & Poor’s Corp. showed that home prices declined 3.2% from last year, how’s that for slow house appreciation. Naturally these indices are calculated in different ways and based on different sets of data, so it’s hard to compare, but they both paint similar pictures of the housing market: no more “easy money” and “rapid appreciation”, this is the bursting of the housing bubble (or so say the pessimists).

Thursday, August 30, 2007

Bernanke comments on the mortgage crisis

On Aug. 27th, Fed Chairman Ben Bernanke sent a letter to Senator Charles Schumer, in which he said there’s no need to lift the caps on Fannie Mae’s and Freddie Mac’s portfolios. A similar opinion was expressed by OFHEO (Office of Federal Housing Enterprise Oversight), the federal regulator of the two GSEs’, and President George Bush a couple of weeks ago when a suggestion to lift the portfolio limitations on Fannie and Freddie was rejected. Bernanke said that policy makers may encourage Fannie and Freddie to package more loans into securities and sell them to investors, as these actions are not constrained by the portfolio caps. Bernanke also said that the Fed is closely monitoring the financial markets and “is prepared to act as needed” to prevent bigger problems.

Bernanke suggested developing new mortgage products for low- and moderate-income borrowers that would not cause unexpected spikes in mortgage payments. Clearer explanation of loan terms would also be beneficial to potential borrowers. He also noted that reforming the FHA (Federal Housing Agency) might be helpful.

Analysts believe that these comments spell a high likelihood of a Fed rate cut on the next meeting Sept. 18. Another speech by Bernanke is scheduled for this Friday, and it may well shed some more light on what the Fed is about to do.

Wednesday, August 29, 2007

IndyMac hiring former American Home employees

IndyMac has hired 600 loan officers who lost their jobs when American Home Mortgage filed for Chapter 11 bankruptcy protection a few weeks ago. American Home fired 6,000 employees when its lenders refused to provide further financing after the lender failed to meet margin calls.

Such a move by a mortgage lender is quite unusual in the current circumstances, as most mortgage companies are downsizing amid shrinking credit availability and financial turmoil. According to this website, more than 100 mortgage providers have gone out of business so far this year, but the problems are not contained to subprime lending alone or even to mortgage lenders in general. According to a CNNMoney article, credit card delinquencies have risen significantly from last year. Until recently, credit card payments could be financed by tapping home equity, but now that a large percentage of all homes have virtually no equity left in them, credit card delinquencies are likely to rise further.

Tuesday, August 28, 2007

Subprime crisis scarier than terrorism

A survey performed by the National Association of Business Economics found that experts believe loan defaults and the ensuing financial crisis are the biggest short-term threat to the U.S. economy. Until recently, terrorism was considered the #1 threat. 32% of the participants of the survey named the subprime crisis as the biggest threat to the economy. Terrorism came at #2 with 20%. Other issues on the list included inflation, government spending and the account deficit. The cost of health care was also mentioned as a major concern.

And now that everyone admits that subprime is indeed a problem and that it is already contaminating the entire economy, we don’t really see a solution coming from any of the usual suspects. What we’re seeing is more panic, because the current situation is unprecedented, so analysts don’t know what to expect. Nothing good in any case, I guess.

Monday, August 27, 2007

Credit panic and foreclosure bailouts

Brilliant “bright” ideas on how to prevent a looming financial crisis are raining from everywhere. Just in the past few days, the following proposals have been all over the news.

PIMCO’s Bill Gross urged the White House to bail out troubled home owners: “If we can bail out Chrysler, why can’t we support the American homeowner?” I would say that the Chrysler bailout wasn’t a very good idea either, but then the government had its own reasons for it. In my opinion, it would be totally unfair to pay for borrowers’ unsound financial decisions with other taxpayers’ money. According to this blog entry, it turns out Mr. Gross himself is heavily invested in mortgages and further foreclosures would sting him quite badly. So that’s why we need to bail out borrowers.

Another brilliant plan comes from presidential candidate Senator Christopher Dodd (D-Conn). What he suggests is, to allow the Federal Housing Administration (a.k.a. FHA) to refinance troubled loans. He believes that the FHA does not serve its purpose well and needs to be reformed is order to be able to help homeowners-to-be. Dodd suddenly appeared among those “concerned” about housing several months ago, and started criticizing the government and the existing system, proposing some rather dubious solutions. Dodd also supported the idea to lift the investment caps on Fannie Mae and Freddie Mac’s portfolio, a move that would allow an inflow of financing on the market. The idea was rejected.

I really wish all these activists were this creative a couple of years ago and invented an economically sound way of “saving the economy”. Unfortunately, right now we are indeed facing serious problems that need to be solved, and every solution seems to have “unwanted side effects” for the economy, the dollar, or the average consumer. Every foreclosure is a particular family’s tragedy, but many of the loans defaulting now should have never been made, and those who were involved in the process only have themselves to blame. It is true that the entire business was infested with fraudulent activity, but in the end everyone had a choice. Sadly, greed often prevailed.

Meanwhile, the Fed has some “bright” ideas of its own. According to CNN, the central bank has temporarily exempted Citigroup and Bank of America from limitations on the amount of money they can lend. So this is more of the same – a move to artificially boost cash flow in a market that is essentially stagnant. Sounds good for a short-term solution, but in the end market forces should be allowed to play their part in the whole thing.

Friday, August 24, 2007

Banks won’t borrow at the discount window

The Fed’s offer to lend at 5.75% to banks wasn’t exactly embraced this week, as only a total of $2 billion was borrowed. Most interestingly, the borrowers were four major banks – Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., and Wachovia Corp., each borrowing $500 million, to show solidarity with the Fed’s attempt to help the financial market. The problem is, the ones in need of financing are smaller companies, such as mortgage originators, hedge funds and their like, who generally borrow from some of the above mentioned, because they can’t borrow directly from the Fed. Banks, however, do not wish to have anything to do with mortgage companies at the moment, because the latter are very much likely to default on any loans extended to them. Therefore, the Fed’s move didn’t help anyone much.

According to an article on, all four banks had access to cheaper credit, so it’s definitely not urgent need for liquidity that made them borrow from the Fed.

Thursday, August 23, 2007

Bank of America invests in Countrywide

It was announced Wednesday that BofA has invested $2bln in Countrywide preferred stock, which can be converted into common stock at $18 per share. Shares of Countrywide traded at above $25 in after-hour trading, an increase of some 20% on the news. Rumors of a possible acquisition/merger with BofA have been circulating for a whil, but until now none had come to materialize. According to the lender’s CEO Angelo Mozilo, “Bank of America’s investment in Countrywide represents a vote of confidence and strengthens our balance sheet, enabling us to position Countrywide for future growth and success”. For some reason, this sounds like a sigh of relief to me.

Kenneth D. Lewis, BofA’s Chairman and CEO, said that “the stock market has been underestimating the value of Countrywide’s operations and assets” – an interesting thought amid all the turmoil, revaluations and downgrades anything mortgage-related has seen. He also added that “The investment … recognizes the importance of the company in providing home financing across the country”, so would I be right to assume that BofA is making a very risky investment just to bail out Countrywide? I’m probably wrong of course …

Wednesday, August 22, 2007

Foreclosures climb higher in July

A report by online service RealtyTrac shows that foreclosures increased 9% from June, a 93% jump from July 2006. While RealtyTrac data may be overstating results somewhat, it still represents the current trend well. RealtyTrac increased its forecast for foreclosure activity this year: now it predicts a 60% jump from 2006 levels as opposed to its earlier estimate of 33%. The number of foreclosures expected is about 2 million, while Moody’s predicts 2.5 million defaults in 2007.

5 states – California, Florida, Michigan, Ohio and Georgia – accounted for more than 50% of all foreclosures, while Nevada had the highest rate of foreclosures with one filing for every 199 households, more than 3 times the average nationwide rate of 1 filing for 693 households. 7 states, including Utah, Oklahoma, New Mexico and Rhode Island, actually reported year-over-year declines in foreclosure activity.

Tuesday, August 21, 2007

Job cuts at Countrywide?

Countrywide, the largest mortgage lender by volume, has until recently been hiring additional staff – usually former employees of defunct rival lenders. It was only a few weeks ago that news of further staff additions at Countrywide emerged, amid layoffs at other companies in the industry. Now we’re hearing that the lender has laid off some 500 employees in its Full Spectrum origination unit, which specializes in Alt-A loans. “The company will monitor market changes and production levels on an ongoing basis and respond as appropriate”, said Countrywide in a statement. Should we rather read “more layoffs to come”?

Shares dropped 7.5% to $19,81 on the news. Countrywide stock was downgraded by rating agencies last week on speculation that tight liquidity may force the lender to file for bankruptcy protection.

Monday, August 20, 2007

Fed shows concern over housing

Apparently, inflation is no longer the Fed’s primary concern. On Friday, the Federal Reserve cut its discount rate by half a point. This is not a Fed Fund rate cut as yet, but still some easing of the Fed’s policy. The discount rate is charged for temporary loans to banks, so lowering the rates means more money for mortgage issuers.

Analysts believe that this move will be met with little enthusiasm, and even if it helps improve the sector somewhat, it will not be effective in the long term, but will rather postpone bigger problems in the industry. According to some, this move is designed to bail out troubled mortgage lender Countrywide, as rumors of a possible bankruptcy filing started spreading last week. Right now, it is widely believed that the Fed’s next meeting in September will bring a rate cut, despite the central bank’s reluctance to put the economy at risk of higher inflation due to cheaper credit.

Friday’s move shows that the Fed is taking seriously the turmoil in financial markets, a problem that received little comment until recently. Any actions in between meetings are very uncommon for the Fed, but policy makers must have changed their minds quickly after they took their decision to hold rates steady the last time they met.

Friday, August 17, 2007

Housing starts lowest in 10 years in July

When the housing starts report came out yesterday, no one was surprised that housing starts dropped last month. It is only natural that in a market like the one we’re seeing today builders are unwilling to begin work on new projects. What was surprising is how much they actually declined. Starts dropped 6.1% to an annual rate of 1.381 million, from 1.47 million in June. That is 20.9% below July 2006 levels and lower than the 1.4 million forecast. Permits dropped 2.8% to an annual rate of 1.373, the lowest since late 1996. Builder sentiment is at the lowest level in years, and for good reason: inventories aren’t moving, despite significant price cuts. Although many would like to buy a house, it’s getting harder to find financing and there’s fear that further price declines may drain all equity out of a home.

Mortgage interest rates increased somewhat this week, but they’re still below the highest readings for this year. 30-year mortgages carried an interest of 6.62%, up from 6.59% a week ago. 15-year fixed-rate mortgages were at 6.30, compared to last week’s 6.25. 5-year adjustable mortgages averaged 6.35%, up from 6.33%, and interest on 1-year ARMs was at 5.67%, a little higher than a week ago, when it averaged 5.65%

Thursday, August 16, 2007

Home sales dropped in 2Q

The National Association of Realtors (also known as the infamous NAR) reported that existing home sales fell 10.8% in the second quarter of 2007. Homes sold at an annualized rate of 5.91 million, down from last year’s 6.63 million. The median home price dropped 1.5% to $223,800. However, amid all the news, NAR officials saw reasons for confidence: median prices are going up in 97 metro areas, as compared to 83 in the first quarter. Lawrence Yun, senior economist for the NAR, said that “Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends”. He also didn’t fail to mention that “Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming-out in the fourth quarter of 2006”. So the market bottomed out in 4Q after all? Let’s hope he’s right. I thought we’d all seen evidence to the contrary.

Wednesday, August 15, 2007

Mortgage availability drops drastically

As credit markets panic, lenders go out of business and hedge funds collapse, whole classes of loans seem to be evaporating. Lenders are no longer willing to fund “Jumbo” mortgages, or loans for sums above the Fannie Mae limit of $417,000, because there’s no one to sell them to. Those who still offer the product charge a fee of 7% and above – and that is for prime borrowers with good credit and a down payment of more than 5%. No-down payment and 5% down payment loans have virtually disappeared from the market, and so have no-doc, interest-only and some other super-risky loans. Subprime and Alt-A borrowers were the first to feel the squeeze; now even consumers with perfect credit are hard put to find financing at a reasonable price.

A Fed survey discovered that 56.3% of banks have tightened credit standards for loans to borrowers with weak credit. 14.3% of the participants in the survey said they had tightened lending standards to prime borrowers, too. Quite bad for anyone wishing to buy a house or refinance their mortgage. It’s only natural that we’re seeing record levels of delinquencies and foreclosure activity. Consequently, anyone wishing to escape adjusting monthly payments has no real alternative to foreclosure. I wonder home many troubled borrowers actually considered the ‘worst-case scenario’ before they signed their mortgage papers a couple of years ago. Or was it the NAR & Co.’s influence? Housing prices could only go up, right?

Tuesday, August 14, 2007

Accredited buyout fails, lender to sue Lone Star

In June, an investment fund called Lone Star proposed to buy Accredited Home Lenders for $15.10 per share. The stock traded at $14-15 at the time, so the price sounded reasonable. Now that shares of Accredited have plunged to well below $10, Lone Star is looking to pull out of the deal. It announced on Friday that deterioration in the market and Accredited’s “financial and operational condition” has prompted a default on the buyout agreement. The mortgage lender filed a lawsuit seeking to “hold Lone Star to its obligations”. The buyout firm then issued a statement saying it can present facts showing that Accredited has failed to satisfy contract conditions and it is looking forward to providing this information in court.

It was widely speculated that Accredited will not be able to continue operations if Loan Star doesn’t proceed with the deal, but the lender seems to believe it will remain operational regardless. According to analysts, the most likely outcome of the situation will be a renegotiation of the terms. It seems, however, that Lone Star would rather prefer to walk out of the deal altogether. This sounds like an interesting case, we’ll be looking forward to more news from Accredited.

Monday, August 13, 2007

Regulators won’t lift investment limits for GSEs

Last week, Fannie Mae requested permission to increase its investment portfolio in order to help spur the slumping mortgage market. It is currently subject to a limitation of 727.2 billion on its portfolio. The Office of Federal Housing Enterprise Oversight, or OFHEO, said on Friday it will not lift the investment caps on Fannie Mae and Freddie Mac. President Bush said that allowing Fannie Mae to purchase more loans was out of the question for the moment. However, “requests for an increase in the portfolio caps” will be kept “under active consideration”, according to a statement by the OFHEO. Freddie Mac’s spokesman expressed disagreement with the OFHEO’s decision.

To prop up the financial system, the Fed injected $38 billion into the market on Friday in the biggest move since the 9/11 terrorist attacks. Similar moves were made by other central banks last week, including those of Germany, Australia and Japan. Consequences of the turmoil in the U.S. financial system are turning up in unexpected places, as a consequence of the interrelations of various investment instruments traded all over the world.

Friday, August 10, 2007

Mortgage rates drop, BNP Paribas freezes securities funds

BNP Paribas, the biggest French investment bank, said it cannot value the assets in three of its asset-backed securities funds and is therefore temporarily suspending redemptions. The funds have lost $0.9 billion in the past three weeks, almost a third of their value in July. BNP Paribas said in a statement that, “regardless of their quality and credit rating”, it is impossible to value the assets because they don’t get any bids from investors. Approximately a third of the funds’ investments are backed by subprime paper but the panic in the U.S. credit market itself has caused much of the problem. Other funds are also losing value or being frozen by financial institutions in the current market, because the underlying assets cannot be sold at what would be considered fair prices.

Amid such problems in the financial markets, interest rates dropped this week, with the 30-year fixed home loan declining to 6.59% from 6.68% last week. The 15-year adjustable-rate mortgage averaged 6.25%, down from 6.32% a week ago. 5-year adjustable mortgages carried an interest rate of 6.33%, compared to last week’s 6.29%. 1-year ARMs were at 5.65%, up from 5.59%.

Thursday, August 9, 2007

Toll Brothers Inc. reports 21% drop in revenue

Luxury home builder Toll Brothers reported a 21% drop in revenue for Q3 2007, which was, nevertheless, better than analysts had expected. JP Morgan Securities had forecast a drop of 28%. Shares gained 6% on the news, the biggest increase in a year. Toll reported sales of $1.21 billion, a drop from $1.53 billion a year ago, but still better than the projected $1.09 billion. Toll did not make an earnings forecast for this year, which may mean that they are concerned about their financial stability.

Toll Brothers CEO Robert Toll said the worst markets were in Florida, Nevada and Southern California, but Philadelphia, Massachusetts and Washington are stabilizing. He also noted that ‘no one knows’ how long the slump in housing will last. The cancellation rate reached 24% in Q3, up from 19% in the previous quarter. The current housing slump is hurting all homebuilders, and Toll Brothers has not escaped unaffected, but they seem to be doing better than most for now.

Wednesday, August 8, 2007

S&P to downgrade Alt-A

Standard and Poor’s said it has put 207 classes of securities backed by Alt-A mortgages on CreditWatch negative. The original total balance of the securities was $913.9 million. After the collapse of subprime lending, Alt-A loans are the next problem group which is causing significant losses to lenders and investors in mortgage-backed securities.

The situation on the mortgage market right now was aptly described as ‘panic’ in one publication, as virtually all types of non-conforming loans – from subprime to jumbo, are either no longer available or prohibitively expensive. Borrowers looking to refinance meet limited to no supply from lenders. Mortgage companies are making daily, and sometimes hourly decisions about the availability and pricing of products, making financing hard to come by.

In other news, the Fed Fund rate remains the same at 5.25%, as expected.

Tuesday, August 7, 2007

Fannie asks regulators to raise financing cap

Fannie Mae has reportedly asked the Office of Federal Housing Enterprise Oversight (OFHEO) to increase the maximum amount of loans it can hold in its portfolio. Fannie says this will help stabilize the market and provide financing for potential home buyers. The mortgage giant is required to keep mortgage holding at or below $727 billion. Freddie Mac, Fannie’s smaller sibling, is also subject to a similar limitation. Shares of Fannie Mae gained more than 10% on the news and closed at $62.50 on Monday.

Regulators generally try to prevent the two GSEs from controlling too large a part of the market, because of the potential consequences for the broader economy. Allowing Fannie to keep more loans in its portfolio, or raising the cap on ‘conforming’ loans would probably be good for the market, but I don’t think regulators find the thought of permitting Fannie and Freddie to grow even larger very appealing. It’s a well-known fact that in some areas nearly all loans are ‘jumbo’ because the median is well above the $417,000 limit for a ‘conforming’ loan financed by Fannie Mae, so there must be something inherently wrong with the classification in general. While setting ‘local’ limits for ‘conforming’ loans sounds impractical, there must be something that can be done to make the system more realistic.

Another thing that could help spur the market would be a rate cut, but choosing the right policy in the current circumstances is a very complex problem which the Fed will have to resolve on its meeting this week. Most analysts believe that the Fed fund rate will remain at 5.25% where it’s been for more than a year, but a cut is likely sometime by the end of 2007. Much will depend on how the economy behaves, including such indicators as inflation, employment, the dollar, and the whole range of housing-related problems. Housing prices are another concern that needs to be addressed. They grew beyond any reasonable limits during the housing boom, so in the long term, a drop in prices would be considered a good thing. Providing more financing, or cheaper financing, would only slow that process down.

Monday, August 6, 2007

Bear Stearns fires president

Warren Spector, Bear Stearns’ President and co-Chief Operating Officer resigned on Sunday, as the financial giant faces its biggest downturn in decades. Spector was expected to succeed the current Chairman and Chief Executive James Cayne. Rumors of the possible firing of Spector were already circulating on Saturday, so the board met to discuss the matter on Sunday, although a meeting was scheduled for Monday. Bear Stearns Chairman and CEO James Cayne asked for Spector’s resignation earlier last week.

Some shifts have happened within the company, with Alan Schwartz, president and co-chief operating officer since 2001, becoming the sole president, and Samuel Molinaro becoming COO and CFO.

Standard & Poor’s Rating Services changed Bear’s rating outlook from ‘stable’ to ‘negative’, meaning that the chances of a credit downgrade have increased. Shares plunged immediately and the company arranged a conference call, featuring some awkward behavior from CEO Cayne, which didn’t help improve investor sentiment much. Bear tried to convince investors that its “balance sheet is strong and liquid”, but this didn’t help to dissipate concerns over troubled hedge funds and market instability. Shares of Bear Stearns have lost more than 30% so far this year.

Friday, August 3, 2007

American Home Mortgage, Accredited in trouble

American Home Mortgage is firing more than 6000 out of 7,000+ employees, effective today. It has ceased taking mortgage applications and will maintain its thrift and servicing businesses. Shares traded below $1 in after-hours trading yesterday.

Accredited Home Lenders, another troubled mortgage lender, filed its annual report yesterday. The company’s public accountant Squar, Milner, Peterson, Miranda & Williamson LLP said that, if the previously announced merger with Lone Star does not close, Accredited may not be able to operate as a “going concern”. If the situation in the mortgage industry does not improve, Accredited may have to file for bankruptcy and exit the business.

The acquisition agreement with Lone Star priced Accredited at $15.10 per share, compared to the stock’s current price of a little more than $5. Accredited said that it is “proceeding as planned” toward closing the merger, but analysts believe that terms will have to be renegotiated if the transaction is to take place at all.

Thursday, August 2, 2007

More troubled hedge funds

The two troubled Bear Stearns hedge funds, the High-Grade Structured Credit Strategies Master Fund and High-Grade Structured Credit Strategies Enhanced Leverage Master Fund, that suffered devastating losses from bad bets on subprime loans filed for bankruptcy protection earlier this week. Investors are taking legal action against Bear Stearns Cos., accusing the company of providing misleading information regarding exposure to mortgage-backed securities.

Another hedge fund firm, Sowood Capital Management LP, announced that it’s liquidating its Alpha funds after they lost more than 50% of their market value in July. Sowood lost more than $1 billion in a month, as its asset value plunged from $3 billion to approx. $1.5 billion. Fearing that it will not be able to meet its margin calls, Sowood sold most of its portfolio to Citadel Investment Group LLC.

In other signs of spreading contagion from the housing market, car manufacturers are posting double-digit declines in sales in July, and companies from chemical maker DuPont to insurers and transportation companies are blaming low revenue on the weak housing market. Speculation is mounting that homebuilder Beazer Homes USA may file for bankruptcy after its quarterly report showed loss of $123 million, sending shares down 18%.

Wednesday, August 1, 2007

American Home Mortgage: nearly bankrupt?

In a news release issued yesterday, July 31, American Home Mortgage (AHM) announced that it is “experiencing a hindering of access to its traditional lending facilities” and will be unable to fund its lending obligations. The lender has paid “very significant” margin calls in recent weeks and “has substantial unpaid margin calls pending”. AHM has retained Lazard, the same company that served now-bankrupt New Century, to assist in evaluating “strategic options”, including liquidation of its assets.

Shares dropped more than 90% immediately after trading was resumed, to close at $1.04. According to analysts, a bankruptcy or major restructuring is very likely because AHM can not function without its financing. Shareholders will probably be left with nothing. The whole story looks a lot like the subprime lender meltdown, only that now it’s Alt-A.

Lawsuits seeking class action status are already being filed against AHM. Charges include failing to disclose substantial information that affected its earnings and resulted in overstating its financial results.

Shares of other lenders were affected, too, with Countrywide down 3.8% to $28.17, Fremont General declining 11% to $5.77 and NovaStar losing 25% at $9.64.

American Home Mortgage: nearly bankrupt?

In a news release issued yesterday, July 31, American Home Mortgage (AHM) announced that it is “experiencing a hindering of access to its traditional lending facilities” and will be unable to fund its lending obligations. The lender has paid “very significant” margin calls in recent weeks and “has substantial unpaid margin calls pending”. AHM has retained Lazard, the same company that served now-bankrupt New Century, to assist in evaluating “strategic options”, including liquidation of its assets.

Shares dropped more than 90% immediately after trading was resumed, to close at $1.04. According to analysts, a bankruptcy or major restructuring is very likely because AHM can not function without its financing. Shareholders will probably be left with nothing. The whole story looks a lot like the subprime lender meltdown, only that now it’s Alt-A.

Lawsuits seeking class action status are already being filed against AHM. Charges include failing to disclose substantial information that affected its earnings and resulted in overstating its financial results.

Shares of other lenders were affected, too, with Countrywide down 3.8% to $28.17, Fremont General declining 11% to $5.77 and NovaStar losing 25% at $9.64.