AHM Is in Bankruptcy, Other Servicers in Trouble

Three midsized servicing firms failed or closed in August and two others were struggling to bolster their cash positions as the nation's nonprime liquidity crisis worsened during the summer.

In total, the three that went bust -American Home Mortgage, Aegis Mortgage and HomeBanc - serviced $78 billion in residential loans. But only one of these firms, Aegis of Houston, was heavily involved in subprime. (See table.)

AHM and HomeBanc filed for Chapter 11 bankruptcy protection. Both had loan buyback troubles and had been the subject of margin calls.

Owned by hedge fund giant Cerberus Capital, Aegis stopped funding new loans in early August and shuttered most of its production offices, laying off hundreds of workers. Sources say its servicing platform is now on the auction block.

At press time, alt-A servicers Impac Mortgage, Irvine, Calif., and Accredited Home Lenders, San Diego, were trying to preserve cash, hoping for conditions in the secondary market to improve. (Accredited is also heavily involved in subprime.)

Impac is now funding only GSE loans, suspending - for now - production of alt-A.

The largest servicer to fail during the summer was Melville, N.Y.-based AHM, a publicly traded real estate investment trust that relied on $9 billion in warehouse lines of credit. It serviced $50 billion in home mortgages, including many owned by Fannie Mae and Freddie Mac.

AHM was not much of a player in subprime, though it did suffer from a certain amount of buyback requests, particularly on alt-A loans, sources said.

Meanwhile, Wall Street firms that have extended warehouse lines to non-depository subprime lenders and bought their loans continued to press firms for margin calls, regardless of whether they are suffering high delinquencies or not.

Worried about its future, Accredited said in a public filing that it may not continue to operate as a "going concern," citing deteriorating conditions in the market, including rising delinquencies and early payment defaults. (At press time, its sale to a private equity firm, Lone Star, was in doubt.)

AHM's collapse is one of the largest in the prime-related space in several years.

Sources told Mortgage Servicing News that Fannie and Freddie are now exploring their options in regard to AHM's servicing. (The GSEs, as a policy, do not comment on financial arrangements they have with their seller/servicers.)

According to first-quarter documents AHM filed with the Securities and Exchange Commission, its warehouse backers include nine major banks or investment banks including Bear Stearns, Bank of America, Barclays Bank and UBS Securities, among others. Bear and UBS have the largest credit exposure on AHM. Each has committed lines of $2 billion.

In a statement issued early last week, AHM blamed its downfall on an "unprecedented" liquidity crisis in the secondary market. AHM said it had "received and paid very significant margin calls." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.bondbuyer.com/ http://www.sourcemedia.com/

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