American Home Mortgage hit by margin calls
American Home Mortgage Investment Corp. shares came under pressure on Monday after the lender said that recent disruption in credit markets has triggered “significant” margin calls.
Melville, N.Y.-based American Home also said it’s delaying payment of a quarterly dividend on its common stock to preserve cash and other liquid assets. Dividends on American Home’s Series A and Series B cumulative redeemable preferred stock are likely be halted as well, the company said in a statement late Friday.
Some mortgage originators, including American Home, rely on credit lines from large banks to help them “warehouse” loans they’ve offered. When they’ve accumulated enough mortgages, the loans are packaged as mortgage-backed securities and sold on to institutional investors in the asset-backed securities market. Without such lines of credit, these lenders find it tough to keep originating loans.
Credit-market disruptions have caused major write-downs in the value of American Home’s portfolio of loans and securities. In the wake of those drops, the company said its lenders issued margin calls, which are demands for more money or collateral to back loans.
“Holding off on dividend distributions should help preserve liquidity, which is clearly appropriate given the extremely challenging operating environment,” James Ackor, an RBC Capital Markets analyst, wrote in a research report Monday in which he downgraded the stock to sector perform from outperform.