Accredited Home Lenders Sends Loans To Vulture Investors (LEND)

Accredited Home Lenders Holding Co. (NASDAQ:LEND) has issued a press release saying that it has entered into an agreement to trade approximately $1 billion of loans under a 90-day purchase agreement with an investor at an advance rate comparable to the advance rates the company is currently receiving from warehouse lenders.  Shares were initially up only 2% pre-market, but now shares are up closer to 8% around $7.00 on rising volume.

The initial settlement of a pool consisting of approximately $500 million closed on Friday, August 17, 2007, with the remaining loans trading every other week as borrowers make their first payments due under the loan. The final sale of the loans is expected to occur by October 2007.  Accredited has the ability but not the obligation, in its sole discretion, to repurchase all of the loans traded through mid-November 2007 at a premium to the advance rate. If the loans are not repurchased by the Company by mid-November, the Company’s call right to repurchase the loans expires and the investor will keep the loans with limited recourse to the Company.

James A. Konrath, chairman & CEO, stated "If the market improves to a rational level, our intention is to repurchase these quality loans by mid-November and sell or securitize them."

It is anticipated that the transaction will neither produce nor use any significant liquidity at time of funding, but this will reduce AHL’s exposure to margin calls on these loans since the agreement does not permit the investor to decrease the advance rate during the 90-day repurchase period. 

Here is how the company says it will look after the transaction: Accredited has approximately $600 million of loans not covered by this agreement funded by warehouse credit facilities and Company cash.  Terms of the transaction include a small holdback reserve to allow thepurchaser to reject loans that do not meet certain criteria.

For those of you who are not familiar with these "other investors" out there, it sure sounds like there is starting to be some vulture investing out there where investors are gobbling up mortgage loans on the cheap.  We noted some vulture activity starting to be seen just yesterday.  Prices are all over the place depending upon the collateral and the structure of each loan pool traunch.  The good news is that this looks like it will get the bulk of the loans off the books.

Jon C. Ogg
August 21, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.