American Home Mortgage crashes
American Home Mortgage, which specialized in "Alt-A" subprime mortgages, sought protection from creditors in bankruptcy court this morning. Here is a story from Bloomberg. The company 
had issued stock as recently as April, which proves yet again that markets are NOT rational, despite what economists would tell you. American Home is a Maryland corporation and did lots of business here, but its corporate headquarters is in New York. The company laid off most employees last week.
It's hard to tell what this says about the Maryland real estate market. Nothing good, but then again most of the mortgages American Home held for investment were originated elsewhere. 10 percent were in Florida, which is ground zero for the real estate mess. 23 percent were in California at the end of 2006, according to the company's 10-K. California is not far behind as a real-estate mess. Other AHM loans were concentrated in Illinois, Virginia and New York.
Comments
what are you saying? That this company sought to file bankruptcy or sought protection from beoming bankrupt? There is a difference. But how can anyone seek to avoid becoming bankrupt? Explain!
Posted by: kdatie | August 6, 2007 2:24 PM
American Home is not bankrupt. Bankruptcy is when you don't have enough assets to pay your bills, and when you went bankrupt in the olden days you landed in debtor's prison and rotted away. These days companies seek and obtain protection from creditors, which bankruptcy judges are empowered to extend. Then, under the supervision of the bankruptcy court, they either reorganize their finances or liquidate, whichever is in the best interests of creditors. No debtor's prison.
Posted by: Jay Hancock | August 6, 2007 2:31 PM
This is about survival of the fittest. AHM is JUST a conduit - NOT a direct lender. A good friend of mine at Wells Fargo, a major buyer of AHM paper told me that this is NOT a spill over into the conventional market, but it is about mitigating risk and reward.
AHM underwrites the loans and sells them to 1 of 4 major buyers, At that point, they initially make the VAST majority of the revenue and then pass on the loan.
That is what they are a pass through, just look at the dividends they paid out. Everyone saw how much they made and now its tightening AND now the big 4 better control their risks without sharing in the rewards.
Posted by: Consumer Mortgage Reports | August 7, 2007 7:24 AM