Secured and unsecured creditors of American Home Mortgage Investment Corp. have worked out a deal to divvy up the bankrupt company’s remaining cash.
Banks led by Bank of America Corp. have agreed to take the first $1.02 billion raised, the Associated Press reported. They will then split the rest with creditors, according to the report, citing filings in U.S. Bankruptcy Court.
The unsecured creditors group includes a number of major Wall Street banks. Both they and Bank of America are urging for a quick sale of a portfolio of 3,400 mortgages, the final piece of collateral on about $1.08 billion worth of bank loans, the AP noted.
However, American Home is pushing back, asserting that it is not a good time to be selling mortgages.
American Home, which filed for bankruptcy last August, has been paying down its bank debt with proceeds from asset sales, including up to $500 million raised from the sale of its loan servicing business, according to the AP report.
The AP pointed out the settlement represents a concession by banks, since they are entitled to insist on getting all their loans repaid in full before unsecured creditors are paid. However, under the agreement, unsecured creditors will get some cash from asset sales before the banks are completely paid off.
The creditors also agreed to support the banks’ bid to quickly sell the mortgages.
The settlement enables the unsecured creditors to claim foreclosed homes that were carrying $17 million worth of unpaid mortgages issued when the housing market was still very strong, the AP reported. However, it is not clear what these homes are currently worth in the current depressed market environment.