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Amstar OK Despite Subprime Market Woes
By Alton Gary Simpson
Taking note of the growing troubles in the residential subprime market, Amstar Financial Holdings Inc. commented on the steps its wholly owned subsidiary, Amstar Mortgage Corp., has taken to protect its customers and shareholders. The company held an informational conference call on April 4 to reassure interested parties about the company's direction.
"We felt that we needed to address this issue," said Amstar president and CEO Howard Wayland. He stated that the company's management had received inquiries from loan officers and investors about Amstar's exposure to the subprime market woes caused by rising early payment default and foreclosure rates. He added that Amstar had the foresight -- gained through bitter experience -- that allowed the company to insulate itself from the current turmoil in the subprime marketplace. He explained that in 2005, Amstar suffered the loss of both its warehouse lines of credit when its lender severely curtailed lending after receiving $5 million to $6 million of fraudulent loans from another mortgage banker.
"I don't know of any other company that lost its warehouse lines and survived. It cost us $1.8 million then. It didn't seem fortuitous at the time, but we would have had a $12 million loss [if it was today], which would have wiped us out," said Mr. Wayland. "We're not going to take anymore risks with our warehouse line."
With the bitter lessons of 2005 behind it, Amstar currently stresses quality control and the company has negotiated contracts with its lenders that prevent it from having to buyback loans due to a borrower's first payment default. To date, with more than $6 billion in loans closed since the company's inception, Amstar has not had to repurchase a single loan. The company also doesn't sell securities on the secondary market. It sells loans as a correspondent to Amstar's lending partners. This allows it to have a buyer for a mortgage prior to funding.
While the company is insulated from the subprime market woes, it is not immune to them. According to Mr. Wayland, Countrywide, New Century and WMC have walked away from loan commitments to Amstar. He quickly added that the losses to the company have been minimal. "In the $70,000-$80,000 range," he said. "Nothing compared to what other mortgage bankers are facing. The market is spanking everyone. Even the big mortgage bankers are feeling it right now." He added that several smaller mortgage bankers are currently at risk as larger lenders begin walking away from loan commitments. Mr. Wayland also noted that tighter underwriting guidelines are being felt by everyone in the residential lending arena and that subprime products such as 100% LTVs are quickly fading away.
Despite the turmoil in the subprime niche, Mr. Wayland sees opportunities that Amstar may be well positioned to take advantage of. Among those opportunities is the chance to acquire new branches. "I'm actually pretty excited about it," he said.
According to the company's first-quarter financial statements, Amstar posted a total operating loss of $15,047 and a net loss of $72,878 on total revenue of $10.4 million, which represented a significant improvement from the same period the year before. The same quarter in 2005 witnessed an operating loss of $983,070 and a net loss of $812,574 on revenue of $13.7 million. Amstar also managed to create a net increase in cash by $358,076 during the first quarter. The company currently employs approximately 800 people and is licensed to operate branch offices in 31 states and the District of Columbia.
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