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American Home Mortgage files for bankruptcy protection

American Home Mortgage files for bankruptcy protection

American Home Mortgage Corp. filed for bankruptcy protection on Monday, the latest casualty of a mortgage industry that has plunged into distress.
The Melville, New York-based company's request for Chapter 11 bankruptcy protection _ filed in bankruptcy court in Wilmington, Delaware _ caps more than a week of turmoil for what was last year the 10th-biggest U.S. home lender.
Ten days ago, American Home Mortgage froze the 70 cent-per-share dividend scheduled to be paid that day.
Last week, American Home Mortgage said many of its lenders wanted their money back, and said it was unable to deliver as much as $800 million (euro578 million) for mortgage loans promised to home buyers.
The company said late last week it planned to lay off almost 90 percent of its 7,000 employees.
The stock market had already anticipated that the company was likely to go bankrupt. The company's shares, which closed 2006 at more than $35, tumbled to 69 cents on Friday. In premarket trading Monday, the stock fell 20 cents, or 28.1 percent, to 50 cents.
Several analysts had predicted shareholders would recover little if anything after American Home Mortgage sold off its assets to repay creditors.
American Home Mortgage's 40 biggest creditors include virtually all of Wall Street. The company's three biggest creditors are Deutsche Bank AG, Wilmington Trust Co., and JPMorgan Chase & Co.
Deutsche Bank had no comment. Neither Wilmington Trust nor JPMorgan Chase could be reached immediately for comment.
American Home Mortgage hired the law firm Young Conaway Stargatt & Taylor LLP as general bankruptcy counsel. The company hired Stephen F. Cooper to be chief restructuring officer. Cooper was also chief restructuring officer for Enron Corp.
American Home Mortgage joins more than 50 lenders in bankruptcy this year, but the company is unique among them in two ways. It is bigger than most of the other lenders to go out of business so far, second in size only to New Century Financial Corp.
And, unlike New Century and most of the other bankrupt lenders, American Home Mortgage was not a "subprime" lender. Subprime lenders cater to home buyers with spotty credit histories. Almost none of American Home Mortgage's $58.9 billion (euro42.63 billion) in home loans last year were to subprime borrowers.
After the initial flare-ups at the bottom rung of the mortgage industry's credit ladder, a number of economists including Federal Reserve Chairman Ben Bernanke said the problems in subprime were likely to remain contained.
But American Home Mortgage's bankruptcy, plus indications of problems with prime home-equity loans at Countrywide Financial Corp., are being taken as evidence the upheaval in subprime has spread.
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AP Business Writers Matt Moore in Frankfurt and Stephen Bernard in New York contributed to this report.


Updated : 2021-10-24 03:59 GMT+08:00