BY LINDA LIPP, Greater Fort Wayne Business Weekly
lindal@fwbusiness.com
American Home Mortgage Investment Corp., the company that purchased Waterfield Financial Corp.'s mortgage business in January 2006, halted operations Aug. 3 and closed most of its locations. The company, which employs more than 150 in Fort Wayne, is looking to liquidate its assets.
In an Aug. 2 e-mail memo to employees obtained by Bloomberg News, Chief Executive Office Michael Strauss wrote: "Conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that our business is no longer viable."
In a statement released Aug. 2, American Home Mortgage said it was cutting its work force from more than 7,000 to 750. The company said its thrift and servicing businesses would be maintained.
"The next announcement will be the liquidation of the company's assets or some type of sale of the origination and servicing platform," Miller wrote in a note to investors. "We do not believe the common shareholders will have any recovery."
Earlier in the week, investment banks cut off the once high-flying company's credit lines, leaving American Home Mortgage without money to fund nearly $800 million of mortgages it had already agreed to provide on the last two days of July.
"They can't function without access to capital," Bose George, an analyst with KBW Inc. in New York, said at the time. "The company either has to file for bankruptcy or go through some type of rescue or restructuring, and either way will leave almost nothing for the common shareholders."
In a statement issued July 31, American Home Mortgage said it was seeking a resolution "that is least disruptive to its business and to the many thousands of home buyers to who it has committed to provide mortgages."
But the company added that it had retained Milestone Advisors and Lazard Ltd. to assist in an evaluation of its strategic options, which could include "the orderly liquidation of its assets."
About 650 Waterfield workers lost their jobs in the two months after American Home Mortgage purchased Waterfield. The New York-based mortgage lender and processor retained about 100 back-office workers and also offered jobs to Waterfield sales teams in Fort Wayne and other locations across the country.
Since then, American Home Mortgage's business here had grown. It recently signed a deal to lease more than 15,000 square feet of space in the back portion of the former Waterfield headquarters on West Jefferson Boulevard. That building is now owned by OmniSource, which purchased it for $5 million last year.
"It already had the setup for them," said Kathy Moses-Denig, of CB Richard Ellis/Sturges, who handled the transaction.
Sources said the company may have had plans to add as many as 200 more local workers to its wholesale division, known as American Brokers Conduit. About 150 currently work at the wholesale division's offices in Park 3000 on Coliseum Boulevard, and a few more are employed in the retail division.
No one at American Home Mortgage could be reached for comment.
Former Waterfield executive Deborah Sturges, who founded her own mortgage business, Hallmark Home Mortgage, last year, has hired several former Waterfield and American Home Mortgage associates.
"All the folks who used to work for us, they're like family," she said.
Hallmark employs about 15 in Fort Wayne and has hired about eight people for its new South Bend office.
American Home Mortgage was the nation's 16th-largest mortgage lender in the third quarter of 2005, and had made 10 other acquisitions in the space of five years, just before it announced its cash purchase of Waterfield. American Brokers Conduit was the nation's 10th-largest wholesale lender in 2005.
Earlier this year, defaults on U.S. subprime mortgages rose to the highest level since 2002. But American Home Mortgage offered prime and Alt-A mortgages, an alternative for borrowers who couldn't quite meet the terms for a prime mortgage but were believed to be a better credit risk than subprime borrowers.
The company was the 20th-largest Alt-A lender in 2006, according to March data from trade publication Inside Mortgage Finance. IndyMac Bancorp Inc. ranked first.
Investors have become concerned, however, that lax underwriting standards and growing fraud might presage rising defaults on Alt-A loans. The biggest U.S. mortgage lender, Countrywide Financial Corp., said in late July that overdue payments were up among some of its most creditworthy clients.
American Home Mortgage and Waterfield shareholders are still haggling over $55 million held in escrow since the sale of the mortgage business. American Home Mortgage had laid claim to more than $29 million of the escrowed funds, which Waterfield contested.
It's unclear how a bankruptcy filing or liquidation would affect that litigation. Some shareholders were hopeful that it might speed a settlement of the issue, and said they felt confident the escrowed funds would be protected from bankruptcy claims.
Former Waterfield CEO Don Sherman was more cautious.
"It's all pretty uncertain," he said Aug. 1. "I think we're going to have to wait and let the courts sort it out."
Waterfield completed the sale of its banking business, Union Federal Bank, to Sky Financial in October 2006. That deal briefly was threatened by American Home Mortgage's claim on the escrowed funds, but went through after Waterfield shareholders agreed to escrow another $5 million to $15 million to pay certain Sky merger expenses and costs from the dispute with American Home Mortgage.
The deal gave Waterfield shareholders about $189 per share, which could increase by up to another $40 per share if all the escrow funds are freed.
A few months after its Union Federal purchase, Sky announced it had agreed to be acquired by Huntington Bancshares Inc. That deal closed July 1.
About one-third of Waterfield, founded in 1928, was owned by members of the Waterfield family. One-third of the stock was owned by key executives and one-third by a small group of outside investors.
Trading in shares of American Home Mortgage was halted July 30 before the beginning of the session, and didn't resume until late in the day July 31. The stock, which had traded as high as $36.40 per share in the past year, plummeted from $10.47 to $1.04 in the space of about two hours, a drop of 90 percent.
Information from Bloomberg News was used in this report.