Friday, August 03, 2007

"Bankruptcy is the next logical step"

From CNN Money

American Home Mortgage to shut down

American Home Mortgage Investment Corp. plans to close most operations Friday and said nearly 7,000 employees will lose their jobs as the lender becomes one of the biggest casualties of the U.S. housing downturn. Experts said it is likely the Melville, New York-based company will have to seek bankruptcy protection, and no later than Monday.

American Home originated $59 billion in loans last year, and mostly to people with better credit than risky subprime borrowers. About half of those mortgages were adjustable-rate loans, whose defining feature is an interest rate that can be adjusted upward.

American Home's collapse shows how problems in the U.S. mortgage market are broadening, as credit quality issues begin to affect lenders focused on borrowers with decent credit, as opposed to "subprime" borrowers thought to be greater risks.

While American Home focused on borrowers considered good credit risks, it made many loans to people who could not document income or assets.

The company offered many "Alt-A" mortgages, which fall between prime and subprime in quality, as well as adjustable-rate loans. Founded in 1987, the company said it had by 2006 become the 10th largest U.S. retail mortgage lender.

10 comments:

Patient Renter said...

An alt-a lender going down? No, no no. Subprime is contained, contained I tell you!

Patient Renter said...

... and another?

"Due to severe dislocation in the secondary market, NovaStar Mortgage Wholesale is temporarily suspending approval and funding activity on all loan transactions that have not been locked via a NovaStar Lock In Confirmation until Tuesday, August 7th, at which time the policy will be reevaluated. Locked loans and loans with docs out will continue to fund as scheduled. This is effective immediately."

Diggin Deeper said...

Yup, if everyone, who's anyone, says its contained, it must not be a problem...until the landmines are blowing up weekly...Bear Stearns now downgraded....could a major investment bank fail because of poor loan quality? It's happened before and this party is much bigger than any other bubble party we've been to.

smf said...

Let's see if I get this straight:

Prices of houses go up, companies start offering more loans to people to purchase these ever more expensive home and companies...yada, yada, yada. Argument goes circular.

Anyways, finally these companies find out that people really can't afford these houses at these prices. Companies are starting to lose a lot of money, because the product, houses, costs way too much for most people.

Someone tell me, therefore, why are there people out there who believe prices don't have much further down to go?

Sittin' Out This One said...

Wow, that means about 200,000 home loans will not get made in 2008. Amazing the big originators are starting to fall faster and further now.

Diggin,

I think you are right. The big investment banks will start teetering soon. Also, some people believe several home builders are already BK, they just don't know it yet. Some of them have a lot of finished lots with bonds. If they can't pass the infrastructure payment on to Joe 6-Pack in 24 months, the HB gets to start stroking the checks. The data I saw suggest the improvement bonds and the corporate bonds combined exceed net worth now.

I am sorry this whole liquidity induced bubble is happening. It is going to produce a lot of misery. Ultimately, you can not have affordable housing unless you have developable land and healthy home builders. That may take 5 more years to rebound.

tough guy said...

I'm wondering exactly how much lot inventory the homebuilders have. Since many are just walking from options (and therefore buildable land), what does this say about their future pipeline which is necessary for sustained market presence? If entitling stops, where's the buildable land going to come from?

Sure, they need a quick fix now (dumping home and lot inventory), but taking a step back, I'm not convinced that a lot of these merchant builders have a long term plan to assure a continued revenue stream. I guess they'll cross that bridge when they get to it.

Lastly, given news of Beazer's predatory lending, I'd love to know what the true story is behind all of the big builders' mortgage divisions? Beazer's practices have resulted in a bunch of REO because of weak buyers defaulting. It appears keeping your head above water is all that matters right now, no matter who else you drown in the process, and without regard to where you may wash up.

Cmyst said...

smf,

In my saner moments, I realize that prices will eventually come down.
When you talk to people, the disconnect comes when they're talking about their own house. In general, they will agree that RE is way overpriced and they will readily agree that most people can no longer afford even a modest home.
When you talk about their home, however, they begin to get tense and to insist that the value of their home is very high.
I'm not a patient person, and it irritates me that housing could appreciate 25% a year on the way up and then painfully slowly drop back down. I want it to drop NOW.
For all the people who are moaning about the damage blogs like this and now the regular media are doing to RE "value", I just have to answer that without these blogs I would have simply washed my hands of the whole notion of ever buying again and quit even looking at this point. The blogs are keeping my interest piqued, and eventually (if I live that long) I will buy again.

aggiealum said...

Read on a stock blog that on Bloomberg, someone said that banks may start loaning max of 60%LTV, fixed of course. If true, good luck to those who bought in 2005 or later, with pending ARM resets. Sell now before you're no longer the "seller." Just on craigslist today, I saw more Davis homes for sale listed on CL in one day than I have seen in awhile.

aggiealum said...

cmyst,

Housing appreciating at 25% yoy was due to everyone running the "get in." The smart ones (or the ones that a lucky to be forced to sell now) are slowly making their way to the exits. Each week, another exit seems to be shut. Soon, there will be a bum rush to one of very few exits. Then, you will see those 25% yoy gains disappear in a matter of months. Just look at the NYSE, Naz, S&P500, Russell 2000: what took 2.5 to 3 months to build, lost in a matter of days.

jaye said...

And if you look in the Sacto Bee or your local newspaper in the real estate section you will see words like "drastically reduced," "price slashed," "owner anxious," etc.

It's spooky to drive around communities where every other house has a "For Sale," sign on the front lawn. And woes to the people who keep their home, the depreciation of their home will be great. Only good thing to come out of that scenario would be cheaper property taxes.