American Home Unit Threatened
WILMINGTON, Del. (AP) — A judge on Monday rejected a bid to delay consideration of American Home Mortgage Investment Corp.’s plan to sell its loan-servicing unit, saying he’s worried the business is losing value.
“I’m extremely concerned about the wasting nature” of the loan-servicing business, said Judge Christopher Sontchi of the U.S. Bankruptcy Court in Wilmington. He turned down a request to postpone a hearing on American Home’s bid to sell the business for $500 million to an affiliate of billionaire investor Wilbur Ross.
Sontchi said he’s had experience with companies that “lost monumental amounts of value” because of prolonged stays in Chapter 11, and said he did not want the same to happen to American Home. He also said he was “extremely concerned” about American Home’s ability to retain loan-servicing employees as the company liquidates assets.
James Patton, an attorney for American Home, told Sontchi at a court hearing Monday that a delay could cause the company to lose the sale to WL Ross & Co., the Wilbur Ross affiliate. That’s because the portfolio of loans being serviced is dwindling as homeowners pay down their loans.
American Home stopped making new loans shortly before its Aug. 6 bankruptcy filing. Ross can walk away from the sale if the portfolio of loans American Home services drops below $38 billion, said Patton, who is with the law firm Young, Conaway, Stargatt & Taylor. That portfolio was $46 billion just a few weeks ago.
Eugene Weil, a financial adviser to American Home, on Monday estimated that the company will be servicing $40 billion to $44.5 billion worth of loans at the end of October, when the first of two stages of the Ross deal are scheduled to close.
The proposed sale has aroused fierce opposition from several Wall Street investment banks — including Citigroup Inc., Goldman Sachs & Co. and Bear Stearns & Co. — that say American Home lost its right to service the loans and therefore cannot sell that right to WL Ross.
At least one bank, an affiliate of Bear Stearns, has also warned that WL Ross isn’t a licensed loan-servicer and that obtaining a license could take up to 10 months.
American Home, based in Melville, N.Y., has resolved some objections to the Ross sale. It agreed to eliminate home equity line of credit loans from the business being sold. It also reached a deal on its loan-servicing credentials with Fannie Mae.
Fannie Mae agreed to recognize American Home as a qualified loan servicer until the sale to Ross closes. The government-backed housing lender has also agreed to recognize WL Ross & Co. as a qualified loan servicer, provided certain conditions are met.
