1,460 in Melville, NY face an uncertain future - American Home Mortgage

Bankruptcy threat looms for American Home Mortgage

BY DANIEL WAGNER |

[email protected]
11:48 AM EDT, August 1, 2007

In a move that sent shock waves through the financial markets and left investors millions of dollars poorer, Melville-based American Home Mortgage Investment Corp. announced yesterday that it lacked the money to pay its lenders, or the credit to lend to its borrowers.

It was the largest mortgage bank to face possible bankruptcy in a year of bad news for the mortgage industry, and the news that problems were not confined to high-risk lenders helped turn an early stock rally into a 147-point drop for the Dow Jones industrial average.

The effects of American Home's insolvency are far-reaching. The company's 7,627 employees - including about 1,460 in Melville - face an uncertain future. Its borrowers will lose access to $800 million in approved loans, and that number is mounting. Major investors have announced millions in losses. Banks that lent the company billions of dollars could see their stakes dissolve.

And Michael Strauss, the hard-driving entrepreneur who built American Home into a top-10 mortgage bank, lost $42.8 million in 20 minutes when the stock traded on the New York Stock Exchange yesterday.

Consumers with existing mortgages from American Home will not be affected, experts said.

Yesterday's announcement contained shreds of the specific information anxious investors and analysts had been clamoring for since the company kicked off a spate of ominous announcements April 6 by cutting its first-quarter profit projections and dividend.

In a frenzied pre-market sell-off Monday, the stock price dropped 39 percent before the company halted trading. The stock, which topped $36 in December, stood at $6.39 until yesterday afternoon's release, which emerged at 1:13 p.m.

In it, the company acknowledged what many had feared: It had lost access to its credit facilities; lenders had been demanding repayment of some of American Home's debts for three weeks; and there were "substantial" additional calls for repayment outstanding.

The company said it had retained outside consultants to help it resolve the situation in the manner "least disruptive to its business and to the many thousands of home buyers to whom it has committed mortgages."

One option, the company said, was "the orderly liquidation of its assets." But Keefe, Bruyette & Woods analyst Bose George said its prospects for recovery were weak and called the "orderly liquidation" plan "optimistic."

Shareholders agreed. Twenty minutes after trading opened at 2:05 p.m., the stock had fallen 90 percent from its Friday close of $10.47, and the NYSE stopped trading out of concern that its price could fall below its delisting line of $1.

Shares continued to trade electronically throughout the afternoon, ending regular trading hours at $1.04.

Lawyers filed the first of what could be many lawsuits in U.S. District Court in Central Islip yesterday. And Philadelphia-based RAIT Financial Trust issued a release acknowledging that a 2005 financing line exposed its shareholders to $95 million in losses.

The markets began to take stock of just how far institutional lenders will go with their increased scrutiny of investments throughout the mortgage market.

"A lot of people are going to suffer," said Manhattan lawyer Dan Brecher. "It's not that they were lying - a lot of people just believe their own baloney."

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Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

I feel bad for those employees. My mom has worked in the mortgage industry for about 20 years, and there are layoffs CONSTANTLY. There is literally no job security becuase many of the companies are so dicey. All the people in that field as so nervous all the time.... there were major layoffs even in the 90's, when things were supposedly 'good'.

the last company she worked for (which has 'restructured' to about 1/5 its original size) was typical.... a subprime lender... she claimed that about a third of those mortgages should have NEVER been approved.... she said the company was just greedy and they didn't care about ethics. Many loans defaulted, and they sent many people into bankrupcy.

They were finally sued by the gov't for their shady practices, mercifully.... (apparently, they also charged larger fees to african american women than white men with similar credit histories , and it was this 'final straw' that got the investigation started)

Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

Jake said they sent an email to everyone yesterday at 12pm telling them

(I guess he knows someone that works there)

sadly I am not surprised

3 of the 4 companies he worked for this year went under

Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

My DH works for that company...today might be his last day

Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

The whole mortgage industry seems so shady to me. I feel bad for the honest people that work there but I hope there is some sort of government investigation/oversight of these companies bc there are a lot of crooks out ther.

Message edited 8/2/2007 9:36:10 AM.

Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

My friend works for AHM and is frantically trying to find a new job. He can go to any type of company though, it doesn't have to be a mortgage company.

My DH's old employer, a smallish mortgage company right across the street from AHM in Melville, is also going through some iffy stuff. The owner sold off his controlling shares in the company just a few weeks ago.

Looks like my DH got out just in time. I suppose it's not a very secure thing to be involved in real estate right now.

Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

Posted by Nicole728

My DH works for that company...today might be his last day

Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

Posted by Nicole728

My DH works for that company...today might be his last day

Re: 1,460 in Melville, NY face an uncertain future - American Home Mortgage

Posted by Nicole728

My DH works for that company...today might be his last day