American Home Mortgage facing bankruptcy

NEW YORK -- The struggling mortgage lender said its financial backers have essentially pulled the plug. The Wall Street banks that lend American Home Mortgage money for home loans — which include firms like UBS, Bear Stearns and JPMorgan Chase — will not extend the company any more money, and some have demanded back the money they have lent.

Dozens of mortgage lenders have gone bankrupt this year as more people miss payments on home loans, housing prices sag and skittish investors flee risky mortgage debt.

But while most of the bankrupt lenders catered to "subprime" borrowers — or borrowers with checkered credit histories — almost none of American Home Mortgage's $58.9 billion in loans last year were classified as subprime.

American Home Mortgage specializes in adjustable-rate mortgages, which carry interest rates that reset according to certain benchmark interest rates. This type of debt has hamstrung a lot of borrowers in the past year because interest rates have jumped.

The company also lends to so-called Alt-A borrowers, or borrowers that cannot document their income. While Alt-A credit is not considered as unreliable as subprime, it is a step down from prime.

American Home shares, which were halted all day Monday, plummeted when trading finally began at about 2 p.m. ET and ended the day at $1.04 a share, down from $10.47 on Friday before the company first disclosed the depths of its financial woes.

The Dow Jones industrial average, which had been up as much as 140 points earlier in the day, reversed course after the resumption of trading in the company's stock and then kept falling. It fell 1.1% or almost 146 points for the day.

Keefe Bruyette & Woods analyst Bose George said American Home Mortgage will probably go bankrupt, or at least be restructured into something leaving very little value for shareholders.