American Home Mortgage's
first-quarter profit slumped 44%, fueled by a deteriorating market for risky loans.
In the first quarter, the Melville, N.Y.,
mortgage lender made $30.7 million, or 54 cents a share, compared with $54.5 million, or $1.02 a share, in the year-earlier period. Revenue dropped 15.4% to $197.2 million.
"As has been well publicized, the first quarter was a difficult period for mortgage lenders," said Michael Strauss, American Home's CEO. "Our company also found the first quarter to be challenging. During the quarter, a severe disruption in the secondary mortgage market caused the prices we received for our loan production to be far less than in previous quarters."
Strauss said the company's gain-on-sale margin, excluding delinquency-related charges, was 1.09%, compared with 1.52% in the fourth quarter. He said American Home's reserves for loan delinquencies are at record levels.
"While I am disappointed by our company's results, our company will always be susceptible to significant disruptions in the secondary mortgage market," he said. However, "it does appear that the secondary market is stabilizing. During April, more loan buyers have been bidding to buy our loan pools. Additionally, spreads on some junior mortgage securities have retraced a portion of the sharp widening that occurred in March; junior mortgage securities are trading in a more orderly fashion."
But American Home is still anticipating that gain-on-sale margins in the near future "will continue near the low levels" experienced during the first quarter, he said.
On Monday, American Home cut its full-year
earnings estimate again. The company now expects to make between $3.25 and $3.75 a share this year.
Earlier this month, American Home warned investors that it would make between 40 cents and 60 cents a share in the first quarter and between $3.75 and $4.25 for the year.
Analysts were originally expecting it to earn $1.06 in the quarter and $5 for the year. American Home attributed the lower earnings to poor market conditions which reduced its gain on sale revenues and forced it to have write-downs of "low investment grade and residual securities."
The firm also said that a "disproportionate share" of its nonperforming loans are repurchased Alternate-A loans.
The company was not the only lender affected by the meltdown of the subprime sector last quarter.
filed for Chapter 11 bankruptcy protection April 2, and even stronger lenders such as
have taken a hit.
Shares of American Home were trading up 54 cents to $24.35 on Monday.