In a move that sent shockwaves through the financial markets and left investors millions of dollars poorer, Melville-based American Home Mortgage Investment Corp. announced yesterday that it lacked the money to pay its lenders or the credit lines to pay its borrowers. It was the largest mortgage bank to face bankruptcy in a year of bad news for the mortgage industry.
The effects of American Home's insolvency are far-reaching. The company's 7,627 employees -- including about 1,460 in Melville -- face an uncertain future. Its borrowers will lose access to $800 million in approved loans. That number is mounting by hundreds of millions of dollars each day. Major investors have announced millions in losses on the company. Banks that lent the company billions of dollars could see their stakes dissolve.
And Michael Strauss, the hard-driving entrepreneur who built American Home from a home-office operation into a top-10 mortgage bank, remaining its principal stakeholder throughout, lost $42.8 million in 20 minutes when the stock was marked sharply lower. The announcement contained shreds of the specific information that anxious investors and analysts had been clamouring for since the company kicked off a spate of ominous announcements on 6 April with a downward adjustment of first-quarter profit projections and dividend policy.
The company's executive vice president and chief investment officer Thomas McDonagh, who was paid more than $1.8 million in total compensation in 2006, had resigned only one day earlier. The company has acknowledged what many had feared: It had lost access to its credit facilities, lenders had been demanding repayment of some of American Home's debts for three weeks, and there were "substantial" additional calls for repayment outstanding.
The company said it had retained outside consultants -- companies that have assisted bankrupt mortgage firms in the past -- to help it resolve the situation in the manner "least disruptive to its business and to the many thousands of home buyers to whom it has committed mortgages." One option, the company said, was "the orderly liquidation of its assets."
Philadelphia-based RAIT Financial Trust, a publicly-traded investment pool, issued a release acknowledging that a 2005 financing line to AHM exposed its shareholders to $95 million in losses.
BY DANIEL WAGNER mailto:daniel.wagner@newsday.com?subject=Newsday.com%20Article
8:00 PM EDT, July 31, 2007
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