American Home Adds to Loss Reserves

American Home Mortgage has warned that it expects to post a loss for the second quarter as a result of delinquent loan repurchases.The company also reduced its earnings guidance for 2007, though it said it plans to maintain its $0.70-per-share dividend. The company is adding to loan loss reserves, saying it expects to take "substantial charges for credit-related expenses" in the second quarter. The company said the higher repurchases relate to a three-month "timely payment" warranty on stated-income loans with high loan-to-value ratios that are sold to investors. American Home said it has stopped making this type of loan and expects the high credit-related losses to diminish as the warranty expires on loans already sold. Chief executive officer Michael Strauss said the company's goal in establishing reserves for this problem is "to put the impact from the discontinued products behind us." American Home's repurchase burden peaked in April before declining in May and June, the company said. American Home issued the update after the close of trading on June 28, and the company's stock price declined more than 20% in after-hours and morning trading on June 29.