Home loan crisis affects more firms
The financial toll of the home loan crisis grew Thursday as a large independent mortgage firm stopped taking loan applications, another lender said its survival was in doubt and the industry’s leader felt compelled to issue a statement saying it had adequate access to funds.
Two other lenders, meanwhile, tightened their loan standards, and the market for securities backed by sub-prime mortgages showed signs of weakening.
The latest news mostly affected lenders specializing in alt-A mortgages, which go to people with good credit who don’t qualify for loans with the best terms, demonstrating how defaults have spilled over from sub-prime borrowers to people with more reliable records.
The developments ranged from coast to coast:
* American Home Mortgage Investment Corp., based in Melville, N.Y., said it would halt operations today, laying off most of its 7,000 employees. American Home’s stock plunged 50% to 72 cents a share in after-hours trading. Last year it traded as high as $36.86.
* Accredited Home Lenders Holding Co., a sub-prime mortgage lender that agreed in June to be acquired, said it might have to file for bankruptcy protection, sending shares of the San Diego-based firm tumbling.
* Calabasas-based Countrywide Financial Corp., the biggest U.S. mortgage lender, said it had significant sources of short-term funding to weather a decline in demand to buy home loans sold by lenders.
* IndyMac Bancorp Inc., an alt-A specialist based in Pasadena, and Cleveland-based National City joined rival lenders in tightening loan standards. IndyMac cited a “very panicked and illiquid” market for mortgage-backed securities.
* The perceived risk of bonds backed by sub-prime mortgages surged to new highs based on prices of derivatives linked to such securities. The moves by so-called ABX indexes suggest the market value of the highest-rated sub-prime bonds is down 10% since June. Lower-rated sub-prime bonds are down more sharply.
American Home, which specialized in alt-A loans, had been struggling to raise money to make new loans and said this week that its financial backers -- including Wall Street firms UBS, Bear Stearns Cos. and JPMorgan Chase & Co. -- had essentially pulled the plug.
One reason the Wall Street firms balked is that the mortgage loans that act as collateral for the company’s credit lines have sunk in value, and lenders are having trouble selling their mortgages.
“No one wants the product, so if no one wants it, you’re not going to originate it,” said Vincent Arscott, an analyst at Fitch Ratings in New York. “The only thing that investors are willing to take on are straight prime, plain-vanilla products with no strings attached.”
More than 70 mortgage companies have sought buyers or closed since the start of 2006. Of those, at least half a dozen have declared bankruptcy.
Accredited Home, also an alt-A lender, cast doubt on its buyout by Lone Star Funds.
“Several of our competitors have recently stopped originating loans or sought protection under bankruptcy laws,” the firm said in a regulatory filing. “We may suffer a similar fate.”
The company’s stock plummeted $2.90, or 35%, to $5.31. Later the firm said it was “proceeding as planned to work toward closing the merger,” but added that there was no guarantee it would close. In late trading, the stock partly rebounded, to $6.66, still down 25% from the end of Wednesday’s regular trading.
Countrywide, meanwhile, said it had almost $50 billion of “highly reliable short-term funding liquidity.” The lender also said it hadn’t experienced any disruption in financing its daily operations. The statement was issued after the close of regular trading, during which Countrywide fell 45 cents to $26.77.