Shocking Development in the Alt A Market Today

AHM and ABC Conduit hit skid row today—press release and commentary to follow:

Press Release:

[b]MELVILLE, N.Y.–(BUSINESS WIRE)–July 31, 2007–American Home Mortgage Investment Corp. (NYSE: AHM) today reported that it is working diligently to determine how best to resolve the liquidity issues that have recently developed with respect to its business. These issues are primarily the result of the unprecedented disruption now occurring generally in the secondary mortgage market.

American Home Mortgage noted that this disruption has fueled concerns in the market regarding credit risk, causing many market participants to
suspend the purchase of loans from a variety of originators including
American Home. Accordingly, American Home is currently experiencing a
hindering of access to its traditional credit facilities. Additionally,
American Home’s lenders have initiated margin calls in response to the
decline in the collateral value of certain of the Company’s loans and
securities held in its portfolio. The Company has received and paid very
significant margin calls in the last three weeks and has substantial
unpaid margin calls pending. Further pressure on the Company’s liquidity
presently exists due to its warehouse lenders effectively reducing, in
this environment, their advance rate on new loans made by the Company.

Based on the foregoing, the Company at present is unable to borrow on its credit facilities and was unable to fund its lending obligations yesterday
of approximately $300 million. It does not anticipate funding
approximately $450 to $500 million today.

American Home Mortgage emphasized that it is seeking the course of
resolution, in this environment, that is least disruptive to its business
and to the many thousands of home buyers to whom it has committed to
provide mortgages. The Company has retained Milestone Advisors and Lazard to assist in evaluating its strategic options and advising with respect to the sourcing of additional liquidity including the orderly liquidation of its assets.

This news release contains “forward-looking statements” that are based
upon expectations, estimates, forecasts, projections and assumptions. Any statement in this news release that is not a statement of historical fact, including, but not limited to, earnings guidance and forecasts,
projections of financial results and loan origination volume, expected
future financial position, dividend plans or business strategy, and any
other statements of plans, expectations, objectives, estimates and
beliefs, is a forward-looking statement. Words such as “look forward,”
“will,” “anticipate,” “may,” “expect,” “plan,” “believe,” “intend,”
“opportunity,” “potential,” and similar words, or the negatives of those
words, are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and other factors that are difficult to predict, and are not guarantees of future performance. As a result, actual future events may differ materially from any future results, performance or achievements expressed in or implied by this news release. Specific factors that might cause such a difference include, but are not limited to: American Home’s limited operating history with respect to its portfolio strategy; the potential fluctuations in American Home’s operating results; American Home’s potential need for additional capital; the direction of interest rates and their subsequent effect on the business of American Home and its
subsidiaries; risks associated with the use of leverage; changes in
federal and state tax laws affecting REITs; federal and state regulation
of mortgage banking; and those risks and uncertainties discussed in
filings made by American Home with the Securities and Exchange Commission.

Such forward-looking statements are inherently uncertain, and stockholders must recognize that actual results may differ from expectations. American Home does not assume any responsibility, and expressly disclaims any responsibility, to issue updates to any forward-looking statements discussed in this news release, whether as a result of new information, future events or otherwise. [/b]


PERSONAL COMMENTARY: AHM was a juggernaut in the Alt A niche (this is where strong credit/asset investors are relegated to) and the trickle effect is massive—AHM owned wholesale mega-giant ABC Conduit—no coincidence that ABC is making tandem announcements today about closing down operations.

The sub-serving markets are next to fall—any loans that AHM use to purchase the servicing rights to, will need to find another channel or buyback the loan pool…MY PREDICTION: More lender fallout and insolvency issues on the horizon).

My secondary market contacts allowed me to skirt this issue altogether and none of my clients have been effected by this development.

I offer investors on this forum a suggestion for immediate action:

If any investors have a Alt A loan pending, get on the phone and ask your broker if ABC/AHM were the original sources of funding—can’t get them on the phone? The uninformed will be too be busy relocating their pipelines…

Another one bites the dust…The Alt A/Sub prime market will soon be something that they discuss as history in the training manuals. Just like Middle Class America…

Good Post.

ABC was overrated anyway. I stopped using them several months back when they clipped their “no seasoning” cash out refinance since still offered by other lenders. Other than allowing 90 day seasoning cash out refinances they had no real niche.

The wholesale side was in negotiations to be sold off. My resources told me that they dont plan to close their doors and are still taking applications (for those that like risk). Could be blowing smoker though. They are looking for new credit lines and hope to be funding in the next couple days.

For those that have loans with them, I would advise to start speaking to other mortgage professionals who have alternative lenders with similar products. Hopefully you wont need to start over, but best to be safe.

As stated earlier, there are going to be many other lenders that have American Home Mortgage as their end investor discountinuing that product. So you need to make sure they’re not the end investor of your loan.

It’s official.

AMH and ABC closed their doors today.