The
10th largest independent home loan provider in the US, American Home Mortgage
has filed for bankruptcy protection as a consequence of the shake out of the slump
in the US home mortgage market. It is the largest mortgage bank to file for bankruptcy
protection. On
30 July, the company sent shockwaves through the financial markets when it announced
that it lacked the money to pay its lenders or the credit lines to pay its borrowers. The
US home loan market has been hit by rising interest rates that have been pushing
up loan repayments, leading an increase in defaults that have hit the bottom lines
of mortgage lenders, with sub-prime lenders, who that caters to the riskiest borrowers,
has been hit the hardest. According
to a Credit Suisse report an estimated 1.5 million US borrowers were likely to
default on their home loans worth up to $220 billion as mortgages move up in line
with rising interest rates over the next 18 months. American
Home Mortgage, which had issued $60 billion of loans last year, sought bankruptcy
protection from creditors and last week laid off the majority of its staff, retaining
only 750, down from over 7,400 earlier this year. It
provided loans to prime and sub-prime lenders and also provided the less common
mortgage with adjustable interest rates, while most mortgage providers charge
only fixed rates. With
its home loan portfolio rapidly losing value, American Home Mortgage''s financial
backers withdrew support and the company ran out of cash. Among its 40 biggest
creditors are virtually all the major names of Wall Street led by Deutsche Bank
AG, Wilmington Trust and J P Morgan Chase as its top three lenders.
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