Here We Go! First Earnings Guidance - AHM

This is very bad news kids.

"Market conditions are expected to reduce gain on sale revenues and necessitate write-downs of low investment grade and residual securities

The Company now sees first quarter earnings per diluted share of $0.40 to $0.60 and full year 2007 earnings per diluted share of $3.75 to $4.25

Common stock dividend policy is changed to $0.70 per share per quarter or $2.80 on an annualized basis (was $1.12 quarterly!)"

and

"Michael Strauss, American Home's Chairman and Chief Executive Officer, commented, "During March, conditions in the secondary mortgage and mortgage securities markets changed sharply.

In particular, these markets were characterized by far few buyers offering materially lower prices, both for loan pools and for "AA", "A", "BBB" and residual mortgage securities. These changes had a significant, adverse impact on our Company's first quarter results, reducing our gain on sale revenue and causing mark-to- market losses in our portfolio.

While the market may recover, and while we will attempt to restore our gain on sale margins by raising interest rates charged to consumers, our working assumption must be that current market conditions will persist and that our gain on sale margins will not recover through the balance of the year.

Consequently, I am disappointed to report that our Company is lowering its full year earnings guidance and its dividend policy."

Can you say "I told you so?"

There are times I hate being right. This would be one of them.

Let's remember - these folks, along with many others in the space, had said "oh no, we didn't make any of those bad loans" and "ALT-A" is safe.

Well, guess what folks? AHM does not and never did write subprime business! They were an ALT-A lender, pure and simple! Yet this is what they said about the market environment for their mortgage-backed security offerings:

"The Company's first quarter results will be adversely affected by lower gain on sale margins. As March progressed, loan pools offered for sale by the Company received relatively few bids at lower than expected prices. As a result, those loans originated by the Company in late February and during March earned lower gain on sale revenues than were anticipated.

The Company's first quarter results will also be adversely affected by write-downs of its portfolio of low investment grade and residual securities. In particular, the Company's approximately $484 million of securities rated "AA", "A" or "BBB" will be written down to account for an unusually large widening in the first quarter of the spread over LIBOR at which these securities trade."

This is going to screw every mortgage lender - AHM has all along claimed to be "immune" to this, and what's even better, people have claimed that their insiders were buying their stock as "proof" they would be ok.

Uh huh.

Oh, by the way Mr. Strauss - perhaps you can tell us where you found the accountant that multiples 40 cents by 4 quarters and gets $2.75?

You might also tell us how you intend to pay a 70 cent dividend quarterly when you only have 40 cents of operating income coming in the door!

The spin isn't totally gone, but its definitely dissipating fast in light of these inconvenient things called facts.

Never mind that just a couple of weeks ago there was "Supplemental Information" published by this very same company which attempted to distance itself from the tsunami that was overtaking lender's share prices! Let's recap that - on March 6th, this is what the company said:

"Due to recent events in the market, American Home Mortgage Investment Corp. (NYSE: AHM - News) believes confusion may have arisen regarding the types of loans it holds and originates. In response, American Home is herewith providing supplemental information by product type regarding the FICO credit scores, the loan to value ratios and mortgage insurance for both its holdings and originations. Additionally, we are providing information regarding our holdings of Pay Option ARM loans including related delinquency statistics." (Original Article)

This was clearly an attempt to differentiate themselves from other firms that had been suffering a severe shellacking of their share prices.

THEY NOW HAVE HAD TO 'FESS UP - THAT "SUPPLEMENTAL" WAS A PUFF PIECE!

Anyone want to bet on the direction of AHM's stock price Monday morning? And wasn't it nice to release this on Good Friday, when the markets were closed?

I guess the Passion of Jesus Christ finally drove their CEO to Pennance for his sins.

Labels: AHM, Downward Revisions, Earnings Guidance