American Home Mortgage Wants to Sell Mortgage Pools
By Foreclosure-Fighter Staff Writer
With more lenders growing reluctant to approve loans and the housing market continuing its slump, Americans are finding themselves financially strapped. For many, foreclosure proceedings and bankruptcy filings have become a sober reality.
But individuals and families aren't the only ones feeling the pinch of the slowing economy—companies in the mortgage lending industry face similar problems.
American Home Mortgage Investment Corporation, which is in the middle of a Chapter 11 bankruptcy case, is hoping to get permission from the bankruptcy court to sell its mortgage pools, according to reports from the Houston Chronicle. But, with the current face of the market, the company might have difficulty finding a buyer.
During the housing boom, many mortgage companies operated by offering loans to consumers, then putting those loans in large "pools," with hundreds or thousands of other loans. Then, the pools would be sold to investment companies piece by piece.
In theory, the investors would have gotten returns on their investments as borrowers made monthly payments on their home loans—with the high interest rates attached to many subprime and adjustable-rate loans, investors were set to make serious profits. Unless, of course, the borrowers couldn't pay.
Now, mortgage lending companies are finding themselves in situations like American Home Mortgage's—with hundreds of millions dollars' worth of principal loan amounts in non-performing mortgage pools. In an effort to offset its reported debts, AHM has apparently decided to auction off this pool.
The company held a preliminary auction for this debt pool in October, but canceled it when no offers came in, according to sources.
Reports from the Associated Press indicate that, despite its early failure, AHM has refused the one offer it received to purchase the debt pool. No reasons have been disclosed for this decision. The company allegedly plans to hold an auction for the pool in mid-February, if the bankruptcy court grants permission.
Ironically, investing in mortgage debt was one of the main reasons many companies are struggling now: when borrowers defaulted on payments and interest money stopped coming in, investors realized that much of the money they'd spent was unlikely to be refunded.
Now, bankruptcy filings like American Home Mortgage's have left thousands of workers in the financial industry out of jobs—in August, AHM alone let go 1,500 Long Island-area employees, according to reports.
Some sources estimate that now, as many as 2,300 workers in the financial industry are out of work in the Long Island area alone. With a decreased demand for financial workers, many of these people face uphill battles in the job search process.