American Home Mortgage files for bankruptcy protection

WILMINGTON, Del. -- American Home Mortgage Investment Corp. has filed for bankruptcy, becoming the second-biggest residential lender in the United States to close down this year.

The filing adds to signs that late payments have spread to homeowners with good credit. American Home sought federal court protection yesterday in Wilmington, Del., claiming assets of more than $20.6 billion and debt of more than $19.3 billion. The company said Aug. 2 it would halt operations, and has reduced staff to 1,000 from about 7,400 people at the end of 2006.

American Home specialized in mortgages for people who fall just short of top credit scores. More than half a dozen competitors have filed for bankruptcy this year as defaults spilled over from "subprime" borrowers with bad credit to those with reliable histories. The lender plans to liquidate its services unit and loans not reclaimed by banks that it claims forced it into bankruptcy through margin calls.

"Their sources of funding have all dried up," said Mark Power, a lawyer advising some of the more than 100,000 creditors. "This case is going to be very similar to New Century."

New Century Financial Corp., based in Irvine, Calif., became the largest home lender to seek court protection from its creditors when it filed for bankruptcy in April. That company is now being liquidated.

Trading of American Home shares on the New York Stock Exchange was halted at 9:35 a.m. The shares, which closed Friday at 70 cents, fell to 44 cents before trading was stopped.

American Home listed in its court petition some of the biggest investment banks as its top creditors. The top five unsecured creditors noted include units of Deutsche Bank AG, Wilmington Trust Corp., JPMorgan Chase & Co., Countrywide Financial Corp., and Bank of America Corp., the second-largest US bank by market value after Citigroup Inc.