American Home May Be Stopped From Servicing Loans (Update1)
By Steven Church
The offices of American Home Mortgage Investment Corp.
Aug. 16 (Bloomberg) -- American Home Mortgage Investment Corp., the second-biggest U.S. residential lender in bankruptcy, may be forced to stop servicing $46 million worth of loans owned by a unit of Credit Suisse Group.
U.S. Bankruptcy Court Judge Christopher S. Sontchi in Wilmington, Delaware, said he would conclude a hearing tomorrow on whether American Home must stop collecting payments and providing other services on the loans, owned by Credit Suisse First Boston Mortgage Capital LLC. Credit Suisse sued American Home, asking Sontchi to force American Home to stop servicing the loans.
``There is simply no provision for them to retain the servicing contract,'' Credit Suisse attorney Howard B. Comet said in court today.
American Home, based in Melville, New York, is one of 13 mortgage lenders in bankruptcy and among more than 70 that have halted operations or sought a buyer since the start of 2006. The lenders were hurt when rising default rates among home buyers with poor credit frightened investors away from bonds backed by mortgages.
Credit Suisse and American Home disagree about which should control the servicing rights of $46 million worth of so-called scratch-and-dent loans that have flaws, typically missed payments. American Home said it was entitled to keep handling the loans because Credit Suisse didn't properly cancel the servicing agreement.
The loans make up less than 1 percent of the $57 billion in mortgages for which American Home provides payment and escrow services, company Vice President Robert Love said in court testimony today. The company said it plans to sell its servicing unit, including the rights to service those loans.
Credit Suisse's complaint is similar to that of a unit of Morgan Stanley, which sued Aug. 15 to stop American Home from servicing $519 million in home mortgage loans.
Morgan Stanley said in its complaint filed in bankruptcy court in Wilmington that it bought the loans from American Home along with the right to collect payments and provide other services. Morgan Stanley said it allowed American Home to continue servicing the loans temporarily.
Lawyers for American Home and Morgan Stanley said they were close to working out a compromise that they may present at a court hearing set for Aug. 21.
American Home sought bankruptcy protection Aug. 6, three days after it quit making new loans, and reduced staff to 1,000 from about 7,400 people at the end of 2006, according to court records.
Value of Loans
The value of American Home's servicing unit is tied to the number of loans it manages, said Mark S. Indelicato, an attorney for creditors.
``We want to make sure we preserve value,'' Indelicato said.
American Home specialized in mortgages for people who fall just short of top credit scores. At least 12 other lenders have filed for bankruptcy since December as defaults spilled over from ``subprime'' borrowers with bad credit to those with reliable histories.
Before American Home filed for bankruptcy, Credit Suisse agreed to temporarily buy the loans to give the lender access to cash, according to court records. Before American Home could repurchase the loans, it declared bankruptcy.
American Home is providing billing, escrow and other services for loans. Credit Suisse wants to get control of the loans to sell them, Comet, the bank's attorney, said in court.
New Century Financial Corp., based on Irvine, California, is the largest U.S. residential lender in bankruptcy.
The case is In re American Home Mortgages Holdings Inc., 07-11047, U.S. Bankruptcy Court, District of Delaware (Wilmington).
To contact the reporters on this story: Steven Church in Wilmington, Delaware, at email@example.com .
Last Updated: August 16, 2007 21:27 EDT
American Home May Be Stopped From Servicing Credit Suisse Loans
Bloomberg - Aug 16, 2007
16 (Bloomberg) -- American Home Mortgage Investment Corp., the second-biggest US residential lender in bankruptcy, may be forced to stop servicing $46 million worth of loans owned by a unit of Credit Suisse Group. US Bankruptcy Court Judge Christopher ...
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