American Home Mortgage Faces Liquidation
American Home Mortgage Investment Corp. confirmed Tuesday that it is facing serious liquidity issues amid a flood of margin calls from lenders and has hired advisors to evaluate its options, including the liquidation of its assets.
The Melville, N.Y., lender, whose stock was halted all day Monday and earlier Tuesday pending the announcement, said its lenders have initiated margin calls as the collateral value of some of the company’s loans and securities has dropped. The company said it has already received and paid “very significant” margin calls in the last three weeks and has “substantial” unpaid margin calls pending.
The company said it is unable to borrow on its credit facilities at present and was unable to fund its lending obligations of about $300 million Monday. It does not anticipate funding about $450 million to $500 million Tuesday.
American Home said it has retained Milestone Advisors and Lazard to help in evaluating its strategic options and to seek additional liquidity.
American Home raised concerns about its ability to stay in business last Friday when it said it would not pay a promised 70-cent dividend because it may need the money to fund operations.
The company said the turbulent conditions in the mortgage market forced it to mark down the value of its portfolio of home loans and loan-backed bonds. Some of the lender’s financial backers want their money back, and the company said it needs to hold on to cash in case the credit environment worsens.
American Home relies on short-term bank financing to temporarily fund its home loans. If it doesn’t have cash on hand to meet banks’ demands, it may have to sell assets, find new financing, or restructure its debt.
As of March 31, the lender had $4.01 billion of borrowings outstanding under its warehouse lines of credit and total liabilities of $19.3 billion, according to its regular first-quarter filing with regulators. Its assets had a total book value of $20.55 billion.