American Home Mortgage Problems Accelerating
American Home Mortgage saw its stock price plunge 21 percent Thursday - its largest single-day drop so far in a month of near-constant declines.
As of the closing bell, shares were at $10.76, down $2.84 from an opening price of $13.60 - and almost 50 percent below June 28’s close of $20.91.
A year ago, shares were trading above $36.
Analysts said the movement came amid rumors that a key Wall Street investor had pulled its financial backing of the Long Island, New York mortgage lender that originates loans and trades in mortgage-backed securities.
The New York Stock Exchange contacted American Home Mortgage on Thursday afternoon, requesting a public statement “which may explain the unusual activity.”
American Home Mortgage’s chief financial officer told one analyst that there was no truth to the rumor, as Reuters reported.
A spokeswoman for the home mortgage company told both the NYSE and Newsday that it is not company policy “to comment on unusual activity or rumors.”
The stock drop came as the troubles that led many national subprime lenders into bankruptcy this spring spread to banks like AHM whose loans - while not technically subprime - had less stringent borrowing requirements than a top of the line, prime rate loan.
Some analysts said the company’s tone had shifted since its most recent public filing. That was a mid-quarter “update” in which American Home withdrew all earnings guidance for the year and announced that it would assume $125 million in new debt from Marathon Asset Management LLC
Although American Home was not heavily involved in the subprime area, it did issue a line of Alt-A mortgage products - now discontinued - that required less proof of borrowers’ incomes and offered more money for the amount of equity borrowers used as collateral.
Bose George, an analyst with the Manhattan-based investment firm Keefe, Bruyette & Woods, Inc., said he was “surprised” by the extent of the stock’s decline this week.
“The outlook was weak, and it was weak after the last announcement, and it has remained weak, but I don’t know what happened between Monday and now,” he said.
He said he does not expect the company to collapse, but that “in the longer term, there are still a lot of issues this company faces” related its rapid expansion and high expectations for origination volume of home loans.
Earlier this month, the home loan lender confirmed that it had laid off about 200 workers from its Melville, Long Island, office.
George said that unless the company is having liquidity problems - a fact that would not come out until American Home releases its second-quarter financial data next week - “it shouldn’t be trading at huge discounts.”
If next week’s disclosures are weak but contain no surprises, he said, the stock price could even experience an uptick based on investors’ relief that its problems are relatively contained.
SOURCE: Newsday