Mortgage Lender's Bankruptcy May Threaten Thousands of Homeowners
By PEG BRICKLEY
/ September 12, 2007; Page A15
Thousands of homeowners face an "imminent risk" of losing their homes because of clashes
between American Home Mortgage Investment Corp. and its former financial backers, according to Freddie Mac, a government-chartered
In documents filed with the U.S. Bankruptcy Court in Wilmington, Del., Freddie Mac said it seized
$7 million that homeowners sent to American Home to cover principal and interest payments, property taxes and insurance just
before the company's Aug. 6 collapse. American Home quit making payments to tax authorities and insurance companies Aug. 24.
Mac said 4,547 loans valued at nearly $797 million are at stake. It said it doesn't have the loan files necessary to pay insurance
premiums and property taxes on them, however. "Therefore, there is the imminent risk that borrowers' insurance policies may
lapse for nonpayment, subjecting the borrowers to a risk of loss of their mortgaged properties," Freddie Mac said.
bills will go unpaid, Freddie Mac said, "resulting in increased tax liabilities and possible tax-foreclosure sales." It added
it needs a court order allowing it to seize American Home's loan files "to avoid these serious consequences stemming from
AHM's inability to service the Freddie Mac mortgage loans."
The wave of mortgage-lender bankruptcies in the past few
months has disrupted loan-servicing arrangements and triggered court fights over who should get control of the files necessary
to service the loans, court documents show.
American Home has resisted demands that it give up loan-servicing files,
hoping to auction its loan-servicing business intact in an effort to raise money for creditors. Loan-servicing businesses
have proven to be among the few valuable assets left in the wreckage of the failed lenders. Some of Wall Street's biggest
investment banks are fighting for control of them.
For ordinary homeowners, however, the results could be dire, consumer
lawyers say. "Companies receive the loan files that they are supposed to be servicing, but the payments don't catch up," said
Jill Bowman, an attorney with James Hoyer Newcomer & Smiljanich, a Tampa, Fla., law firm that represents consumers in
class-action suits against mortgage companies. "Payments are being deemed late, even when they're not, because they can't
catch up with the paper." The result is additional insurance costs and accumulating late fees.
American Home, based
in Melville, N.Y., and once one of the country's biggest mortgage lenders, serviced about $50 billion in mortgages. Its bankruptcy-court
filing generated particular concern at Freddie Mac and Ginnie Mae, an agency that is part of the Department of Housing and
Just days before American Home's bankruptcy filing, Freddie Mac and Ginnie Mae terminated the company's
loan-servicing rights. They also sent representatives to collect loan files from American Home's servicing facility in Irving,
In court documents, American Home said Ginnie Mae representatives "stood in a line in front of the doors and
sat on the stairs, preventing AHM Servicing employees from entering the office." Freddie Mac said American Home "had its security
personnel escort the Freddie Mac representatives out."
In addition to Freddie Mac and Ginnie Mae, several Wall Street
banks are fighting to extract their loans from American Home's servicing operation. The list includes Morgan Stanley, Deutsche
Bank AG, Credit Suisse Group and EMC Mortgage.
In an interview last week, Ginnie Mae's senior vice president, Theodore
B. Foster, said Ginnie Mae had seized from American Home some of the insurance and tax payments collected from homeowners.
"What's occurred is that we have the money, but AHM hasn't been able to or willing to pay the taxes and insurance, and they
have the loan records," Mr. Foster said. "Therefore, we don't know who to pay, and we don't know how much."
Peg Brickley at firstname.lastname@example.org