American Home Mortgage Nears Bankruptcy

The mortgage lending giant American Home Mortgage is teetering on the brink of bankruptcy. The Long Island-based firm says its credit lines are cut off and it may have to liquidate assets. The company has been badly hurt by the downturn in the mortgage market.

American Home Mortgage has hired an adviser to evaluate its options. The news of its troubles killed a stock market rally and renewed concerns that problems in the housing sector are far from over.

Unlike many of the troubled mortgage lenders right now, American Home Mortgage didn't issue sub-prime loans. Instead, the company got big by offering a lot of interest-only loans.

By one count, 12 of the top 50 mortgage companies have gone out of business. On Wall Street, the fear is that investors have lost so much money that they'll cut back on other kinds of lending as well — a shift that could hurt the wider economy.

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