Sub-prime woes start to hit less-risky lenders

American Home Mortgage Investment Corp. shares fell 15% after the company’s loans attracted few bids from investors, fueling concern that losses at sub-prime lenders are spreading to companies that sell less-risky loans.

The Melville, N.Y.-based company reported few bids and lower-than-expected prices for its Alt-A mortgages, a category that is below prime loans for the low-risk customers but above sub-prime loans for people with credit problems.

A week earlier, M&T; Bank Corp. cut its forecast because of weak demand and higher defaults on Alt-A mortgages. M&T; said investor concern about the increase in bad sub-prime loans was hurting prices for less-risky mortgages.

“There’s no question the credit problems we’ve seen in sub-prime are blending into Alt-A,” said analyst Matthew Howlett of Fox-Pitt Kelton Inc. “It’s reflective of the poor underwriting that has gone on in this sector.”

American Home’s stock tumbled $3.92 to $21.92. American Home is a real estate investment trust that originates home loans and invests in mortgage securities.

The lender said it had to write down its portfolio of low-investment-grade and residual securities to reflect current market values, and boost reserves to pay for Alt-A loans that it had to buy back from investors because borrowers didn’t make their payments.

Companies that offer Alt-A mortgages, a category considered at less risk of default because the borrowers have solid credit scores even with an inconsistent income or uneven employment history, have said in the last month that investors are mistaking them for sub-prime lenders and unfairly punishing their shares.

Among rival Alt-A lenders, IndyMac Bancorp of Pasadena fell 54 cents to $31.26 and Impac Mortgage Holdings Inc. of Newport Beach rose 25 cents to $5.10.

More than 40 lenders have halted operations, gone bankrupt or sought buyers as defaults on sub-prime mortgages surged to four-year highs in the final quarter of last year.

Howlett said part of the problem was that Alt-A lenders had lowered their lending standards. “We’re going to see more Alt-A loans perform badly because they’re not traditional Alt-A loans,” he said. “They’re sub-prime.”

In March, Wall Street firms including Bear Stearns Cos. and Goldman Sachs Group curtailed purchases of Alt-A mortgages with down payments of less than 5%. The firms package mortgages into bonds, and investors that buy the securities were demanding more yield to offset the risks.