Accredited Home Lenders Holding Co. on Thursday warned that it could be the latest subprime mortgage lender to tumble into bankruptcy amid a weak housing market and fire-sale atmosphere in the secondary market for subprime loans.

In its annual report, filed with the Securities and Exchange Commission on Aug. 2, the San Diego, Calif.-based mortgage lender issued a "going concern qualification," which said the company cannot assure that it will survive should its lenders increase the "frequency, volume or size" of margin calls.

Like most subprime mortgage lenders, Accredited relies on its credit facilities to fund the millions of dollars worth of home loans it extends to borrowers with weak credit every year. The loans serve as collateral for the credit facilities, and when the loans begin to lose value — because of increased defaults, for instance — banks typically issue a margin call and demand more collateral be put up or a portion of the credit line be repaid.

Accredited said in its 10-K that so far this year it was forced to pay $190 million in margin calls to its lenders, two-thirds of which occurred in a four-week period between February and March.

Faced with the margin calls, Accredited said it had to sell about $2.7 billion in loans at a "substantial discount" to raise enough cash.

The sales provided Accredited with about $134 million in cash to pay creditors, but resulted in a pretax loss of about $150 million, SEC filings show.

With dozens of subprime mortgage lenders already in bankruptcy protection and many more shutting down operations, the secondary market for subprime mortgage loans has too much supply and not enough demand. The cycle accelerated with every mortgage lender hit with new margin calls, and eventually engulfed the entire industry.

"These increased margin calls resulted in more distressed sales which, in turn, put further downward pressure on whole loan sale prices, regenerating the cycle with escalating negative results," Accredited said in its annual report.

Accredited warned that each of its credit facilities allows its lenders to revalue the collateral at any time, to values that the lenders consider the current market value.

"If the frequency, volume or size of margin calls increases significantly, it would have a material and adverse impact on our ability to continue as a going concern," the company said in its annual filing. "Additionally, in order to obtain cash to satisfy a margin call or net loss payment obligation, we may be required to liquidate assets at a disadvantageous time, which could cause us to incur further losses." The grim warning comes at a bad time for Accredited, which in June announced that it agreed to be acquired by Lone Star Funds V for about $400 million.

It is unclear what Accredited's warning means for the proposed $15.10 per share buyout.

A company spokesman did not return calls for comment.

Accredited shares plunged $2.90 or 35.32% to $5.31 at the close of trading on Thursday. —John Blakeley

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Tags: Accredited Home, sub prime lending, bankruptcy