American Home Mortgage Files For Bankruptcy Protection

NEW YORK (AP) _ American Home Mortgage Corp. filed for bankruptcy protection on Monday, the latest casualty of a mortgage industry that has plunged into distress. <br/><br/>The Melville, N.Y.-based company's

Monday, August 6th 2007, 11:02 am

By: News On 6

NEW YORK (AP) _ American Home Mortgage Corp. filed for bankruptcy protection on Monday, the latest casualty of a mortgage industry that has plunged into distress.

The Melville, N.Y.-based company's request for Chapter 11 bankruptcy protection _ filed in bankruptcy court in Wilmington, Del. _ caps a tumultuous 10 days for what was in 2006 the nation's 10th-biggest home lender.

American Home Mortgage said it fell victim to ``extraordinary disruptions'' in the markets that support the mortgage industry. A cold housing market and a spike in payment defaults scared investors away from mortgage debt, including bonds and other securities backed by home loans.

With American Home Mortgage's home loan portfolio rapidly losing value, its financial backers pulled the plug and the company ran out of cash.

American Home Mortgage's 40 biggest creditors include virtually all the major names of Wall Street. The company's three biggest creditors are Deutsche Bank AG, Wilmington Trust Co., and JPMorgan Chase & Co.

Deutsche Bank had no comment. Neither Wilmington Trust nor JPMorgan Chase could be reached immediately for comment.

JMP Securities analyst Steven C. Delaney said the same reason American Home Mortgage went bankrupt in the first place _ the exodus of buyers from the mortgage debt market _ means the company will have trouble selling its assets to raise cash right away.

``We are in a market now where value is a fleeting concept,'' Delaney said. ``The market today has just basically shut down. ... They might not even find a buyer at any price today.''

In a statement, American Home said it lined up $50 million in debtor-in-possession financing from WL Ross & Co. LLC. WL Ross is led by billionaire Wilbur L. Ross Jr., who has rescued failed companies in the steel, coal, telecommunications and textile industries.

The company hired Stephen F. Cooper to be chief restructuring officer. Cooper was also chief restructuring officer for Enron Corp.

The stock market had already anticipated that the company was likely to go bankrupt. Its shares, which closed 2006 at more than $35, tumbled to 69 cents on Friday. The stock fell to 44 cents before trading was suspended Monday.

American Home Mortgage joins more than 50 lenders in bankruptcy this year, though with some differences. It is bigger than most of the other lenders to go out of business so far, second in size only to New Century Financial Corp.

And, unlike New Century and most of the other bankrupt lenders, American Home Mortgage was not a ``subprime'' lender. Subprime lenders cater to home buyers with spotty credit histories. Almost none of American Home Mortgage's $58.9 billion in home loans last year were to subprime borrowers.

Yet like other subprime lenders, American Home's decline was quick. Ten days ago, it froze its 70 cent-per-share dividend.

Last week, American Home Mortgage said many of its lenders wanted their money back, and said it was unable to deliver as much as $800 million in promised mortgage loans.

The company said late last week it planned to lay off almost 90 percent of its 7,000 employees.

Shares of other mortgage lenders sank in Monday as investors showed their concern about the health of its competitors. Countrywide's stock fell $1, or 4 percent, to $24. The stock touched as low as $23.64, its cheapest trade since 2003.

Shares of IndyMac Bancorp Inc. dropped $1.20, or 6.1 percent, to $18.46.

Shares of NovaStar Financial Inc., a subprime lender based in Kansas City, Mo., plunged $2.01, or 31.4 percent, to $4.39. The stock, which peaked at more than $260 in 2004, has never traded so cheaply.