American Home Gets Final OK on $50M Loan

Bankruptcy Judge Christopher Sontchi signed off on the loan from financier Wilbur Ross. At a hearing, the judge also gave American Home permission to use cash generated by its loan-servicing business to keep that operation healthy until it can be auctioned.

On Friday, American Home pushed back a couple of weeks the schedule for auctioning its loan-servicing operation - the surviving business of what was once among the biggest U.S. home lenders when the company collapsed into bankruptcy Aug. American Home, which is based in Melville, N.Y., will auction the loan-servicing business Sept. 24 and seek court approval of the results at an Oct. 1 hearing, said Pauline Morgan, an attorney for the company.

Morgan said American Home expects to have a stalking-horse, or lead bidder, that has committed to set a floor price for the auction. “We have been in negotiation with several interested purchasers,” she told the judge. Sontchi will have to approve a stalking-horse agreement with American Home’s choice of opening bidders.

Tuesday, he approved a settlement with (nyse: FNM - news - people ) that allows American Home to continue servicing more than $5 billion worth of mortgages linked to the government-sponsored mortgage investor. Fannie Mae stripped American Home of servicing rights during the weeks leading up to the bankruptcy, a move that endangered American Home’s claim to be qualified to service the loans.

The deal approved Tuesday allows American Home to continue operating on an interim basis as a Fannie Mae-approved servicer while it searches for a buyer. The settlement requires American Home to close the sale by Oct. In exchange for the agreement, Fannie Mae will get priority in the payment scheme in American Home’s bankruptcy case. As the Chapter 11 lender, Ross will be one of the first to be paid off from American Home’s sale of its remaining operations in bankruptcy.

Bank of America (nyse: BAC - news - people ), as agent for the failed mortgage company’s senior secured bank lenders, will also be at the front of the line to be paid off in the bankruptcy, under terms of the cash order signed Tuesday. Bankrupt companies need court approval to borrow or use cash in their coffers, which is usually subject to lender claims. American Home’s banks granted the company permission to use their cash in order to ensure the sale of the loan-servicing business goes well.