Sunday, July 29, 2007

American Home Mortgage (AHM)

On July 20th, presented its readers with this soothing ditty on American Home Mortgage: American Home Mortgage Back On Track?. The article prominently featured an RBC Capital analyst who tried to give AHM a good pump with an increased price target. Ah, those funny cigarettes they smoke down on Wall Street.

This past Friday night - the 27th, AHM announced stunning news:
American Home Mortgage Investment Corp. Delays Payment of Quarterly Common Stock and Series A and Series B Preferred Stock Dividends

The common dividend was supposed to have been paid on the 27th and I've heard that some brokers even credited the accounts of shareholders. When was the last time a company of this size withdrew its dividend at the last minute?

AMH says it has has been hit with margin calls on its credit facilities.

"The disruption in the credit markets in the past few weeks has been unprecedented in the Company's experience and has caused major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities."

Ah, this is why paying attention to the ABX indices is important. As indexes drop and the cost of insurance goes up to speculate in the mortgage products, it's a sure sign of trouble for companies like AHM, which did much of its business in Alt-A and non conforming loans. The ABX BBB- tranches are at 40-cents on the dollar and below.

What will this mean for the stock on Monday? Delayed open at least and good pounding... maybe down to the single digits?

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