So, if you didn’t catch it: Another major mortgage lender, American Home Mortgage Investment Corp., filed for bankruptcy protection today:

American Home Mortgage joins more than 50 lenders in bankruptcy this year. It is bigger than most of the other lenders to go out of business so far, second only to New Century Financial Corp.

But if that sounds like more of the same news we’ve been hearing for months now, read this:

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 in home loans last year were to subprime borrowers.

When the subprime story on Wall Street started to sizzle in February and March, the big threat we started hearing about was lender belt-tightening. More foreclosures meant lenders would think twice before making new loans, upping the credit scores needed to qualify and requiring higher down payments where homebuyers in some markets, like San Diego, had become accustomed to using none.

And so, experts worried, fewer people would qualify for loans in the first place, and a bunch of people who figured they’d be able to refinance when they first took out mortgages wouldn’t be able to anymore. The housing market, they deduced, could slow further as the pool of eligible buyers shrunk.

Now, says local mortgage expert Mark Goldman (who appeared with me on KPBS’s These Days radio show in March), that restriction is applying not just to people who would have qualified for subprime loans. Now the trouble’s spreading through the general mortgage sector (see this super-cool, helpful New York Times graphic). And it’s going to be harder, much harder, Goldman says, to qualify for a loan.

Lenders have typically borrowed money from a wholesale source to issue a mortgage. That money’s usually due back in a very short period of time — days, not weeks, Goldman said. So the lenders have to work quickly to sell that loan to the people who would split it into pieces and package it up for purchase like stocks by investors. But now, there are fewer and fewer Wall Street firms willing to purchase any of the mortgage packages — not just the super high-risk ones — they once clamored over.

So the lenders will increasingly make only the sure-thing loans, the loans they’re convinced they’ll be able to sell. Or they’ll up the interest rates on the loans to make them extra-attractive to investors. Otherwise, they risk having to shoulder the mortgage themselves.

“They’re tightening requirements,” he said. “Nobody wants to be stuck holding the hot potato. Uncertainty creates fear and fear creates requirements on higher risks.”

The significance of today’s news is truly how much more widespread this issue becomes every day, Goldman said.

“When the poor guy’s in the dumpster, nobody cares,” he said. But when higher-credit, more expensive loans are denied, when more expensive neighborhoods see foreclosure rates soar, the problem’s getting more notice and having wider effects, he said.

Related: See our Voice Hot Topic on housing finance.


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