American Home Mortgage Investment Corp in Trouble

April 11, 2007 No Comments »

Shares of Alt-A lender, American Home Mortgage Investment Corp. of Melville, N.Y., fell sharply the last two business days, falling from over $26 a share to $19.55 after troubling news and subsequent analyst downgrades.

The company announced late last week that is was having trouble re-selling mortgages it originated on the secondary mortgage market. Coupled with slumping market conditions, the company also cut their earnings forecast for the quarter and the year.

While the mortgage lender may not be forced into bankruptcy, it is a telling sign that the mortgage crisis may stretch far beyond the severely rattled sub-prime market.

Alt-A lenders like American Home Mortgage Investment Corp. provide financing to borrowers with typically good credit, but often high loan-to-values and limited documentation.

Unfortunately the race to fund big numbers amid the housing boom allowed numerous questionable deals and borrowers to slip through the cracks, and now many of the Alt-A lenders will need to be closely examined to see the extent of the damage.

Despite the overall solid credit of Alt-A borrowers, many loans originated by Alt-A lenders are riddled with mortgage fraud, late or non-payments, foreclosures, and other defects that make them hard to sell on Wall Street.

The effect has caused many smaller lenders to close their doors because of buybacks and overextended warehouse lines.

Similar Alt-A lenders continue to tread water, although many midsize companies must either find a source of capital quickly or face closure or bankruptcy.

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