Friday, August 03, 2007
By PAUL THARP
Four Employees from American Home Mortgage after the company filed Bankruptcy
August 3, 2007 -- The bankruptcy hammer came crashing down on two more mortgage giants caught in the widening credit crisis as regulators raised more warning alarms yesterday.
The latest casualty, American Home Mortgage, will close its doors today following its sudden bankruptcy filing yesterday, citing losses on shaky mortgages.
Another lender, Accredited Home Lenders, says it is buckling into bankruptcy and expects to file shortly. The firm's collapse in the face of financial ruin over junk mortgages sent shares tumbling 52 percent, and threatened to kill its $400 million rescue sale to private equity firm Lone Star.
Meanwhile, Federal Reserve officials warned that the mortgage crisis could worsen and that its staff experts are patrolling for more cracks that could appear in the broader economy.
Federal Reserve Governor Randall Kroszner told a Senate banking panel that the overall economy hasn't yet been clobbered, "but we're looking very, very carefully at that."
Kroszner and Fed nominee, Elizabeth Duke, acknowledged that mortgage problems are here to stay for a while.
"Unfortunately, I do have some experience with troubled debt, and that specific issue will probably get a lot worse before it gets better," said Duke, a Virginia banker.
Lawmakers on the panel think Wall Street and banks face more woes than the Fed believes.
"We have been told that the problem is largely isolated and contained, but I am concerned that it may not be the case," said Sen. Richard Shelby (R-Ala.)
Defaults are ripping through the entire mortgage bond industry at the fastest pace in years.
Investors hold about $6.5 trillion in mortgage bonds, the world's largest such fixed-income market, says the Securities Industry Financial Markets Association.
Meanwhile, Securities and Exchange Commission chief Chris Cox said the SEC is coming up with new, more flexible accounting rule interpretations that companies and others could use to avoid declaring their mortgage securities in default.
More than 30 mortgage firms have collapsed or closed their doors in recent months over the crisis.The nation's largest mortgage firm, Countrywide Financial, late yesterday went public to defend its tattered image over huge losses and rising costs to insure its securities. The company said it could tap into nearly $50 billion in short-term liquidity, and also has a net worth of $14 billion.