US mortgage giant ceases new business, lays off thousands (AFP)

NEW YORK (AFP) - American Home Mortgage, one of the country's biggest mortgage companies, ceased new business Friday and blamed its woes on the stricken US housing market and a related credit crunch.

Numerous mortgage lenders have gone out of business in recent months, but American Home Mortgage is one of the largest to be hit by problems. It minted 59 billion dollars in loans last year, up from 45 billion in 2005.

In a statement late Thursday, the home loan giant said it had stopped taking new mortgage applications and had told most of its employees they would be laid off Friday.

"The company employee base will be reduced from over 7,000 to approximately 750," the distressed firm said.

"The market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative," said American Home Mortgage's chief executive Michael Strauss.

The multitrillion-dollar US mortgage sector has been buffeted by a national housing slump, a sharp rise in home foreclosures, and tightening credit conditions which makes it difficult to borrow fresh cash and offer new loans.

The market's troubles have also hit Wall Street because some large banks bundled mortgage portfolios into complex securities that were traded as debt instruments.

The Standard Poor's ratings agency announced Friday it had downgraded its outlook on Wall Street investment bank and brokerage Bear Stearns to "negative" due to mortgage-related concerns.

"Bearn Stearns has a relatively high degree of reliance on the US mortgage and leveraged finance sectors, and its revenues and profitability would be especially affected if there were an extended downturn in those markets," the ratings agency cautioned.

American Home Mortgage's problems worsened considerably this week after it revealed Tuesday that it was unable to fund lending obligations of 300 million dollars and also unable to borrow fresh capital to shore up its operations.

Its share price and market worth has been pounded in the past week. The firm's share price dived to 74 cents Friday morning, down from 1.45 dollars a day earlier and off from 10.47 dollars a week ago.

The company's market worth meanwhile has slumped from over half-a-billion dollars to around 40 million in the same period.

Strauss founded the Melville, New York state-based firm in 1998, and it grew rapidly into one of America's largest lenders. Business soared during the housing boom of recent years, but the US property binge ended abruptly in early 2006.

American Home Mortgage is not the only ailing lender.

Another big firm, Countrywide Financial, reported a steep drop in its latest quarterly profit last month. The lender said coming months were likely to be "increasingly challenging."

Countrywide Financial's shares were down over six percent at 25.03 dollars in morning trading amid wider market losses.

Foreign investors have also taken substantial hits from the distressed US mortgage market and credit crunch.

The German mutual fund Union Investment has frozen one of its funds linked to US mortgage bets, Union Investment administrator Nikolaus Sillem told the Frankfurter Allgemeine Zeitung newspaper.

Fears about US real estate and America's mortgage industry have also rattled global stock markets this week.