Due largely to the lending frenzy of the recent real estate boom, many mortgage companies are feeling the squeeze. [tag]American Home Mortgage[/tag] (AHM) recently filed for [tag]bankruptcy[/tag] due to “extraordinary disruptions” in the markets that support the mortgage industry. A slow housing market and many payment defaults scared investors away from mortgage debt, including bonds and other securities backed by home loans.
Homebanc ([tag]HMB[/tag]) was recently delisted from the NYSE and seems to be in a bit of trouble themselves.
I purchased a small chunk of [tag]Homebanc[/tag] at a price of $1.50 a share. Admittedly, I did not do as much research as I should have, but I was banking on the fact that they had a tangible book value of $2.15. The logic was that even if they did go bankrupt, when all of their assets were liquidated I would receive $2.15 per share. I thought I was safe.
Now, it turns out that Homebanc is leaving the mortgage loan origination business.
This is the statement from Homebanc’s CEO:
“In light of the extraordinary difficulties that HomeBanc continues to face in the mortgage loan origination market, we feel that it is in the best interests of the Company to exit this business so that we can focus on preserving the value of our investment portfolio assets and loan servicing operations.”
The two lessons I learned here:
- For every action, there is an equal reaction. The housing market boomed, and now it is slumping. So the cycle continues…
- Don’t buy a stock, until you have done ALL of your homework.
