American Home Mortgage Investment has filed for bankruptcy protection, and two other mortgage lenders said they were not accepting new applications, signs that the housing crunch could be widening, The Washington Post reported Tuesday.
American Home Mortgage of Melville, N.Y., once the nation's 10th largest mortgage lender by loan volume, said Monday it fell victim to "extraordinary disruptions" that effectively cut off the funding it needed to make new loans.
Falling home prices and a spike in payment defaults scared investors away from mortgage debt, including bonds and other securities backed by home loans.
Aegis Mortgage of Houston said it would not accept any more applications and said it could not meet all of its existing funding obligations.
National City Home Equity, a unit of National City of Cleveland, also stopped taking applications for new home-equity loans and lines of credit.
Although bankrupt lenders carry ominous implications for the housing market and for consumers hoping to take out mortgages, the report said, they do not affect the status of mortgage loans already on the books.
A bankruptcy proceeding that ends in liquidation means financial institutions would probably buy the company's loans as its assets are auctioned off; it does not imperil people's homes, according to the report.
American Home Mortgage joins more than 50 lenders in Chapter 11 bankruptcy court this year. It is bigger than most of the other lenders to go out of business, second only to New Century Financial.
But unlike New Century and most other bankrupt lenders, American Home Mortgage was not a "subprime" lender. Subprime lenders cater to home buyers with spotty credit.
Almost none of American Home Mortgage's 58.9 billion dollars in home loans last year were to subprime borrowers.
Yet like the subprime lenders, American Home Mortgage suffered a rapid decline.
Last week, the company said many of its lenders wanted their money back and that it was unable to deliver as much as 800 million dollars in promised loans. It then laid off almost 90 percent of its 7,000 employees.
Source: Xinhua
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