Another Mortgage Lender Sings Bad Credit Home Loan Blues
On Thursday, American Home Mortgage withdrew its 2007 earnings forecast and will likely suffer a surprise second-quarter loss as it takes “substantial” charges for soured home loans.
The Melville, New York-based real estate investment trust, which makes roughly 2.5 percent of all U.S. home loans, is one of many lenders to suffer from rising losses as more homeowners fall behind on payments.
Separately, American Home Mortgage said it has become the latest lender to attract interest from hedge funds.
It said it agreed to sell $125 million of convertible securities with a 9.75 percent dividend to Marathon Asset Management LLC.
American Home shares fell $1.13, or 5.4 percent, to $19.78 in after-hours electronic trading, after dropping 52 cents to $20.91 in regular trading. They closed one year ago at $35.61.
Unlike “subprime” or bad credit mortgage lenders that lend to people with weak credit histories, American Home specializes in prime rate and near-prime loans.
The REIT, however, made many riskier “stated income” loans that required borrowers to produce little documentation, while covering most of homes’ underlying value.
CEO Michael Strauss said losses resulted from investors exercising their right to sell back bad credit mortgage loans that American Home Mortgage made due to borrower delinquencies.
He said American Home Mortgage stopped making these kinds of loans.
“The second quarter will be a period of ‘clean-up’ as the impact from the discontinued mortgage products continues to wind down,” he said.
Strauss said the quarterly loss should be “contained,” and said the number of forced repurchases has fallen 53 percent from April levels.
American home mortgage had in April forecast full-year profit of $3.25 to $3.75 per share, after having reduced that forecast twice in the previous month.
Analysts on average expected profit per share of 75 cents for the second quarter and $3.14 for the year, according to analysts’ predictions.
Currently, American Home Mortgage has maintained its 70 cents per share quarterly dividend, according to market sources.
SOURCE: Reuters