American Home Mortgage Files Bankruptcy in Delaware
This morning, in a filing that had been widely anticipated in the past two weeks, causing tremors in financial markets, American Home Mortgage Holdings, Inc. and certain of its affiliates filed petitions under Chapter 11 of the Bankruptcy Code in the United States District Court for the District of Delaware. Judge Christopher S. Sontchi has been assigned to these cases, which rank among the largest ever filed by a mortgage lender.
Unlike the string of subprime lender cases that have been filed this year, many of which filed in Delaware, this is a case of an Alt-A lender seeking bankruptcy protection. Alt-A loans, sometimes called “no doc loans,” are those made to borrowers with better credit scores, but with little or no income verification. In the wake of the recent subprime collapse, Alt-A lenders were predicted by many analysts to be highly vulnerable. According to press accounts, in recent weeks, other lenders with portfolios of Alt-A loans have moved to cut back on such transactions.
According to the debtors’ declaration in support of their petitions, these filings were brought on by rising default rates and falling real estate values that led to margin calls with respect to the debtors’ credit facilities. On Friday, August 3, 2007, the debtors terminated 6,500 employees in anticipation of these filings and the closing of the debtors’ businesses. As of December 31, 2006, the debtors report that they held a leveraged portfolio of mortgage loans and mortgage-backed securities of approximately $15.6 billion, while debtor American Home Mortgage Servicing, Inc. serviced approximately 197,000 loans with an aggregate principal amount of approximately $46.3 billion.
