American Home Mortgage files for Chapter 11
Copyright by Bloomberg News
August 7, 2007
WILMINGTON, Del. - American Home Mortgage Investment Corp. filed for bankruptcy protection Monday, becoming the second-biggest residential lender in the U.S. to do so this year.
American Home said in the filing it has assets of more than $20.6 billion and debt of more than $19.3 billion. The company said Thursday that it would halt operations and slash its staff.
The filing adds to signs that late payments have spread beyond the subprime market. American Home specialized in mortgages for people who fall just short of top credit scores. More than half a dozen competitors have declared bankruptcy this year as defaults spilled over from borrowers with the worst repayment records to those with more reliable payment histories.
"Their sources of funding have all dried up," said Mark Power, a lawyer advising some of the more than 100,000 creditors of American Home. "This case is going to be very similar to New Century."
New Century Financial Corp., based in Irvine, Calif., became the largest home lender to seek court protection from its creditors when it filed for bankruptcy in April. That company is now being liquidated.
American Home also is probably going to be forced to liquidate, Power said.
The company plans to sell a package of loans and its loan servicing department, which provided collection and escrow services for about 197,000 loans worth $46.3 billion, according to court records.
At the end of July, the company had four unidentified entities interested in buying its retail and wholesale loan businesses, according to court papers. The proposals were never completed.
The bankrupt company will be financed by as much as $50 million in loans from WL Ross & Co., according to a statement from American Home. It said it doesn't believe it has enough money to pay all its creditors and expected to be delisted from the New York Stock Exchange.
Melville, N.Y.-based American Home didn't provide estimates for how much each of its top 40 unsecured creditors was owed. It listed some of the biggest investment banks as its top creditors. The top five unsecured creditors are units of Deutsche Bank AG, Wilmington Trust Corp., JPMorgan Chase & Co., Countrywide Financial Corp. and Bank of America Corp.
Investment bankers began shutting off credit to American Home this year as concerns about subprime mortgages spread, leaving the lender unable to fund at least $750 million in loans and stranding thousands of borrowers, according to a Securities and Exchange Commission filing.
American Home reduced its staff to 1,000 last week from about 7,400 at the end of 2006. That number is expected to fall in the coming weeks, according to the company's court filings.