New York – Shares of American Home Mortgage Investment Corp. plunged 90 percent Tuesday after the company raised fears it may become insolvent, renewing concern about worsening credit quality in the mortgage market and killing a Wall Street rally.
The struggling mortgage lender said its financial backers have essentially pulled the plug. The Wall Street banks that lend American Home Mortgage money for home loans – which include UBS AG, Bear Stearns Cos. and JPMorgan Chase & Co. – will not extend the company any more money, and some have demanded back the money they have lent.
American Home shares, which weren’t traded Monday, plummeted when trading finally began about noon MDT and ended the day at $1.04 a share, down from $10.47 Friday before the company first disclosed the depths of its financial woes.
The Dow Jones industrial average, which had been up as much as 140 points earlier in the day, reversed course after the resumption of trading in the company’s stock and then kept falling. It fell 146.32 points for the day.
Keefe, Bruyette & Woods analyst Bose George said American Home Mortgage will probably go bankrupt.
“The chances are low,” he said of the company’s prospects for survival. “The situation is radically going to be altered.”
American Home Mortgage said that over the last three weeks it has paid “very significant” margin calls, which occur when a lender demands compensation after a borrower’s collateral loses value. The company still faces “substantial” unpaid margin calls.
This echoes reports from a number of other mortgage lenders of late, including New Century Financial Corp., the Irvine, Calif.-based lender that filed for bankruptcy protection this year.
