American Home Mortgage Investment, the troubled mortgage lender based in Melville, New York, closed yesterday, making it the latest company to fail this year as loans made to home buyers even with better credit histories go bad.
In a news release issued on Thursday night, American Home Mortgage said that that it would lay off all but 750 of its 7,000 employees "in light of liquidity issues resulting from disruptions" in the secondary mortgage market.
"Conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative," Michael Strauss, the chief executive of American Home Mortgage, said in a statement.
The company said it was shutting down all but its thrift and servicing businesses "to preserve the value of its remaining assets."
On its Web site on Thursday night, the company said it was no longer taking any loan applications.
Calls to American Home Mortgage offices and e-mail messages were not returned on Thursday night.
While the problems facing American Home Mortgage were widely known, the speed of the company's unraveling came as a surprise.
Last Friday, the company halted its quarterly dividend payment in a last-ditch effort to conserve capital. Several big investment banks issued margin calls on the debt that the company used to buy mortgage-backed securities, which included its loans and those made by other lenders, and it said it was unable to finance mortgages.
"The disruption in the credit markets in the past few weeks has been unprecedented in the company's experience and has caused major write-downs of its loan and security portfolios," American Home Mortgage said in securities filings. "Consequently this has caused significant margin calls with respect to its credit facilities."
Reports of American Home Mortgage's plans were first reported on the Web site for Newsday.
American Home Mortgage is the latest home lender to fall this year and comes as other companies in the mortgage business are sounding alarms.
Until recently, American Home Mortgage, led by its founder and chairman, Michael Strauss, was one of the fastest-growing and largest mortgage companies in the US. It specialized in adjustable-rate mortgages that in the first few years required borrowers to pay the interest or a minimum payment that was even smaller than that. It caters to homeowners with high credit scores and has an extensive network of retail branches, mortgage brokers and correspondent banks.
At the start of the year, American Home Mortgage seemed to defy the problems that were plaguing its industry. In the first three months, the company made US$16.7 billion in home loans, up 27.2 percent from the same period last year.