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.

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