Three subsidiaries of ARH Mortgage Inc. that originated at least $2.6 billion in Alt-A loans in 2006 plan to liquidate their assets in bankruptcy court.
Alliance Bancorp of Brisbane, Calif., filed a Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court in Wilmington, Del., that also names its parent company, Alliance Mortgage Investments Inc., and Alliance Bancorp Inc. of Oakbrook, Ill.
All three companies are subsidiaries of ARH Mortgage Inc.
According to a prospectus the company filed in May with the Securities and Exchange Commission, Alliance Bancorp originated $1.87 billion in payment option adjustable-rate mortgages in 2006, and $406.7 million in option ARMs the year before.
Another ARH Mortgage subsidiary, Alliance Bancorp Inc., originated $818 million in option ARM loans in 2006 and $204.5 million in 2005, the prospectus said.
The document, which detailed the planned issuance of $307 million in mortgage-backed pass-through certificates, said Alliance Bancorp and its parent companies had “breached certain covenants under their respective financing arrangements,” and warned that “bankruptcy of the sponsor may affect the closing of this transaction” involving 777 option-ARM loans.
In the fourth quarter of 2006, Alliance Bancorp experienced an increase in early payment defaults among loans it had sold to investors, the filing said, resulting in increased demands to repurchase those loans.
In the first five months of 2007, mortgage loans the company held for sale suffered price deterioration, and losses incurred when they were sold reduced operating cash flows.
At the same time, the company reported, investors continued to force Alliance Bancorp to repurchase an “unexpectedly high number of mortgage loans” due to early payment defaults, and warehouse lenders demanded the company pay down outstanding balances on lines of credit.
Between Feb. 1 and May 15, the prospectus said, members of Alliance Bancorp’s board of directors loaned about $62 million to ARH Mortgage, parent company of Alliance Bancorp Inc., and Alliance Mortgage Investments Inc., parent company of Alliance Bancorp.
The money was used to help the company’s subsidiaries honor repurchase demands, pay down warehouse lines of credit, and cover operating expenses, the company said.
According to news reports and the Alliance Bancorp’s Web site, in the end, those efforts were not enough. The Associated Press reported that the company ceased operations July 13 and filed a Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court in Wilmington, Del.
In a message posted on the company’s Web site, Alliance Bancorp’s Chief Executive Officer and President Lisa Duehring said the lender had “put up a valiant fight” but that “the latest market was more than we were able to overcome. We have exhausted our resources and do not have the means to move forward.”