American Home Mortgage's survival in Doubt

NEW YORK (Reuters) -- American Home Mortgage Investment Corp. said on Tuesday it can no longer fund home loans and may liquidate assets, putting its survival in doubt and sending its shares plummeting 90 percent.
The large U.S. mortgage provider and real estate investment trust said its lenders cut off access to credit, leaving it without cash on Monday to fund $300 million of loans it had agreed to make.
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It also expected to be unable to fund $450 million to $500 million of loans on Tuesday.
Melville, New York-based American Home (Charts) hired Milestone Advisors and Lazard to help evaluate options and advise on "the sourcing of additional liquidity, including the orderly liquidation of its assets."
With the developments, worries about credit quality and homeowner defaults have spread beyond subprime lenders, which lend to people with weaker credit, to lenders that make higher-quality loans.
American Home offers "Alt-A" mortgages, which fall between prime and subprime in quality, and recently held a roughly 2.5 percent share of the U.S. mortgage market.
"The chances are pretty high that the company either goes bankrupt or materially restructures, leaving little value for shareholders," said Bose George, an analyst at Keefe Bruyette & Woods Inc. in New York.
Prime borrowers catching subprime ills
"The business model of non-bank, mortgage lenders is challenging, and may be unstable, because they are so dependent on the willingness of the capital markets to fund operations," he added.
Mary Feder, a spokeswoman for American Home, did not respond to an e-mail seeking comment. Her telephone mailbox did not accept messages.
American Home did not return calls on Monday, after it delayed paying a scheduled common stock dividend and announced "major" writedowns.
American Home shares closed down $9.43 at $1.04 on the New York Stock Exchange Tuesday. They traded as high as $36.36 last Dec. 6.
Margin calls
Many U.S. mortgage providers have struggled with a housing slump that has caused home prices to stall, borrowing costs to rise and defaults to soar. Dozens have tightened lending policies, quit the industry, or gone bankrupt.
American Home relies on bank financing to help fund home loans.
In its statement, American Home said it could not borrow from its credit lines and had "substantial" unpaid margin calls pending to lenders, even after meeting "very significant" calls in the last three weeks.
According to its most recent quarterly report, American Home had obtained financing from several lenders. Among them were Bank of America Corp. (Charts, Fortune 500), Bear Stearns Cos. Inc. (Charts, Fortune 500), Credit Agricole SA's Calyon affiliate and UBS AG. None immediately returned calls seeking comment.
If it sought bankruptcy protection, American Home would join New Century Financial Corp. and several other home lenders in seeking protection from creditors this year.
Most of those lenders, however, catered to subprime borrowers, rather than borrowers considered better credit risks.
More traditional lenders, such as Countrywide Financial (Charts, Fortune 500), and banks, such as Wachovia (Charts, Fortune 500) and Wells Fargo (Charts, Fortune 500), have been hurt by weakness in the housing market caused in part by subprime loans.
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