July 30 (Bloomberg) -- American Home Mortgage Investment Corp. shares plunged 45 percent, the most since 2003, after the lender delayed its quarterly dividend and raised doubts about whether it has enough cash to stay in business.

Shares of the Melville, New York-based company, which specializes in mortgages for people who fall just short of top credit scores, fell to $5.80 at 9 a.m. before the market opened. New York Stock Exchange trading was halted pending news from the company and didn't resume during regular hours. The stock closed at $10.47 on July 27, down 70 percent this year.

American Home said in a statement last week it needs a ``better understanding'' of how it will be affected by weak mortgage markets. The delay may add to investor concern that bad loans in the U.S. have spread beyond subprime borrowers who have the worst credit records. The company's credibility may be in doubt, and its survival ``is not a foregone conclusion,'' RBC Capital Markets analyst James Ackor wrote today.

``Obviously they have huge liquidity issues,'' said Matthew Howlett, an analyst at Fox-Pitt Kelton Inc. in New York who rates the shares ``in-line.'' ``You've got to do whatever you can to preserve the cash you have.''

American Home had already slashed the quarterly common-stock dividend by 38 percent in April to 70 cents.

Bankruptcy is ``an option I'm sure they're looking at,'' Howlett said. ``It may be the best way, given the destruction in the market, to unwind this in an orderly process, as opposed to just fire-sale everything.''

Lower Values

In the statement, published after trading ended last week, American Home said it will delay paying dividends on common and preferred shares until the company understands how ``current market conditions in the mortgage industry and the broader credit market'' will affect its balance sheet and access to cash. The dividend was due to be paid July 27.

Falling bids by investors who buy mortgages and securities backed by home loans are forcing American Home to write down the value its holdings, the lender said. The drop in value prompted banks that provide credit lines to demand more collateral as a cushion against default.

Withholding the dividends will save about $42 million in cash each quarter, Bose George, an analyst at KBW Inc., wrote in a note. The preferred dividend, which must be completed before common-stock payouts, was about $3.3 million, he estimated.

The company had about $837 million in cash as of March 31 and raised more than $200 million last quarter by selling common and preferred stock.

Domino Effect

``If you've started with $1 billion in cash and you now need to retain $3.3 million, it suggests the billion you started with has gone down pretty materially,'' George said. He's now estimating a full-year loss of $269 million instead of his previous prediction that profit would total at least $70 million.

Mary Feder, a spokeswoman for American Home, didn't return a call seeking comment.

Shares of rival home lenders fell today, with Impac Mortgage Holdings Inc. down 10 percent and NovaStar Financial Inc. tumbling 20 percent. IndyMac Bancorp Inc., which reports earnings tomorrow, slid 6.1 percent. Countrywide Financial Corp., the biggest U.S. mortgage lender, dropped 1.9 percent. It said last week that overdue payments had spread to some customers with strong credit ratings.

Writedowns, collateral calls and cash shortages triggered bankruptcies of subprime lenders New Century Financial Corp. and Mortgage Lenders Network USA Inc., and led to sales of Accredited Home Lenders Holding Co. and Fieldstone Investment Corp.

Falling Profit

American Home said in June that second-quarter profit would be lower because homeowners didn't keep up with payments. Even then, the mortgage lender reaffirmed a plan to pay its 70-cent dividend, citing a ``stabilization'' of the mortgage market.

``We are increasingly concerned that American Home's management does not have a firm grasp on the external issues facing the company,'' RBC's Ackor wrote. He cut his rating on the stock to ``sector perform-speculative'' from ``outperform- average.''

American Home specializes in Alt-A mortgages, an alternative for A-rated borrowers who can't satisfy all the terms for a regular ``prime'' mortgage. The company was the 20th-largest Alt- A lender in 2006, according to March data from trade publication Inside Mortgage Finance. IndyMac Bancorp ranked first.

Bids from investors for American Home's loans began falling earlier this year after defaults on U.S. subprime mortgages rose to the highest level since 2002. Investors were concerned that the lax underwriting standards and growing fraud might presage rising defaults on Alt-A loans.

Loan Originations

The company increased its annual loan-origination volume to $58.9 billion last year from $21.7 billion in 2003 and issued $16.7 billion of mortgages in the first quarter of this year.

As of December, American Home had eight ``warehouse'' facilities, which are credit lines that allow mortgage companies to fund new loans while putting up only a fraction of the money.

``The problem with mortgage banking is, it's a very leveraged business, and you need a fair amount of cash to make it work,'' George said. ``If you're doing $16.7 billion of loans a quarter, with a billion of your own equity, if things go wrong, you can have liquidity problems very quickly.''

American Home was founded in 1988 by Chairman and Chief Executive Officer Michael Strauss. In 2003, the company changed its corporate structure to a real estate investment trust. Such companies are required by law to pay out most of their profit in dividends, with individual shareholders bearing the tax burden.

Earlier this month, American Home disclosed it fired 200 people as home sales slowed. The company subsequently cut 228 more employees, according to a report last week by Newsday, the Long Island newspaper also based in Melville. American Home employed about 7,400 at year-end, according to Bloomberg data.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: July 30, 2007 18:36 EDT