US subprime crisis shows signs of spreading

American Home Mortgage Investment said it is delaying paying dividends on its common stock and may delay payments on its preferred shares because banks demanded it put up more cash after the Melville, New York-based mortgage lender wrote down the value of its loan and security portfolios significantly.

The move represents one of the first indications that the crisis facing subprime mortgage lenders in the US is expanding to affect lenders like American Home Mortgage whose borrowers tend to have higher ‘prime’ or ‘near prime’ credit ratings.

In a statement issued late on Friday the company said the moves were necessary, “in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the Company’s balance sheet and overall liquidity.”

American Home Mortgage, described the disruption in the credit markets over the past few weeks as “unprecedented,” and said this had caused “major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities.”

The margin calls pose a significant problem for American Home Mortgage because it relies on short-term bank financing to temporarily fund the home loans it makes before the home loans are rebundled and sold to investors. If it does not have cash on hand to meet its banks’ demands, it may have to sell assets, find new financing, or restructure its debt.

It had $4.01bn of borrowings outstanding under its warehouse lines of credit as of March 31, and total liabilities of $19.3bn, according to its regular first-quarter filing with regulators. Its assets had a total book value of $20.6bn.

Rising mortgage rates and defaults this year have hurt mortgage lenders in the US, particularly sub prime lenders that lend to borrowers with less than perfect credit scores. So far, more than 50 lenders have filed for bankruptcy or sold themselves.

Earlier this month rumors that a bank had withdrawn one of American Home Mortgage’s credit facilities pushed the company’s shares 20 percent lower. American Home Mortgage told analysts that rumor was false.

The company said in late June that it would likely post a second-quarter loss after suffering credit losses from a type of loan it stopped making. It withdrew its earnings outlook for 2007, but said it expected losses to be contained. American Home Mortgage’s shares closed on Friday at $10.47, their lowest level since April 2003.

Financial Times - US subprime crisis shows signs of spreading