Accredited Stock Crunched

Accredited Home Lenders(LEND) plummeted 41% as the lender warned of possible insolvency if the mortgage industry continues to deteriorate.

"In connection with the challenges facing the non-prime lending industry, several of our competitors have recently stopped originating loans or sought protection under bankruptcy laws," the San Diego-based mortgage lender said Thursday in its annual report. "Unless the values of our mortgage products cease their decline, and we are able to obtain new sources of liquidity and waivers and modification of the covenants in our credit facilities, we may suffer a similar fate."

Accredited said if any of its own lenders decided to execute a so-called margin call - requiring the company to put up additional cash or collateral in exchange for the funding -- the company could be in deep trouble.

"Any such margin call could harm our liquidity, results of operation, financial condition and business prospects," Accredited said.

The company also said that a margin call would require it to sell assets at depressed values and worsen its "financial condition."

Investors are also worried that private equity firm Lone Star, which agreed to acquire Accredited in June for $400 million, is trying to renegotiate the deal at a lower price or scrap the deal altogether after seeing the mortgage market further deteriorate over the past few weeks.

An Accredited representative offered no comment on the deal, but in the filing the company said it expected to close the deal this quarter.

The mortgage industry has been struggling to find footing this year as loan to customers with poor credit are seeing increases in payment delinquencies and defaults.

This subprime lending problem, as it is called, has recently begun to spread to higher quality lending. Comments from several lenders recently, including the largest independent lender, Countrywide Financial(CFC), have shown that the troubles with some prime credit loans.

After taking a big beating already this week, shares of other mortgage lenders were mixed on Thursday.

American Home Mortgage(AHM) surged 31%, NovaStar Financial(NFI) rose 14%, Impac Mortgage(IMH) rose 2%, while Fremont General(FMT) remained flat. Shares of Countrywide and Indymac(IMB) both fell slightly on Thursday.

Earlier this week Accredited Home Mortgage warned it was facing a liquidity crisis and said it had hired two investment advisors to consider strategic actions as well as the "orderly liquidation of assets."

The news comes as Bear Stearns(BSC) faced margin calls on more hedge funds tied to mortgage securities.

Market jitters intensified Wednesday after unsubstantiated rumors circulated that homebuilder Beazer Home would be forced into Chapter 11 bankruptcy protection. But the Atlanta homebuilder denied the rumor.

"It's clearly the annual report," says Matthew Howlett, an analyst at Fox-Pitt, Kelton, about the decline in Accredited's share price on Thursday. "I still see the deal moving forward. They're buying a portfolio of assets that are still performing despite what you've heard."

That being said, "if the company doesn't get acquired it will go out of business," he adds. "There is a lack of liquidity in the market for a company like Accredited. The company is too highly levered to really operate under these conditions."

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