Mortgage mess spreads, creates bargains

NEW YORK (Reuters) - The near collapse of subprime loans has sent aftershocks into the broader mortgage market, pressuring some companies to quit or curtail their lending.

Impac Mortgage Holdings Inc IMH.N, whose executives have complained about being lumped with struggling subprime lenders, on Tuesday suspended the funding of Alt-A mortgages. The loans -- Impac's chief product -- are not as risky as subprime, but not worthy of prime status.

The Irvine, California-based company will only fund loans eligible for sale to government-sponsored entities such as Fannie Mae (FNM.N) and Freddie Mac (FRE.N). Impac has cut expenses and workers nationwide.

"While this is a difficult and painful decision, we believe that it's a prudent strategy in light of the current business environment," Impac Chairman Joseph Tomkinson said in a statement.

Typical Impac borrowers include self-employed workers who have decent credit, but do not qualify for prime lending rates because their income may be seasonal or uneven. In a filing in March, the company said 91 percent of the loans it transferred to its portfolio last year were Alt-A mortgages.

Impac said it is meeting margin calls, but its stock fell 36 percent to $1.09 before trading was halted on Tuesday morning.

Also on Tuesday, privately held Aegis Mortgage Corp, which is based in Houston, said it had stopped accepting loan applications and could not fund all its obligations.

And on Monday, American Home Mortgage Investment Corp (AHMIQ.PK), which also made Alt-A loans, filed for bankruptcy protection after Wall Street lenders cut off funding.

Standard & Poor's said on Tuesday it might downgrade about $914 million worth of securities backed by Alt-A mortgages. The rating agency cited rising delinquency rates among the loans.

Anworth Mortgage Asset Corp's (ANH.N) shares fell 19 percent to close at $4.85 as investors widely punished mortgage-related stocks.

And the shares of RAIT Financial Trust (RAS.N), whose investment portfolio includes $4.3 billion in mortgage loans, fell 23 percent on concerns over its exposure to bankrupt American Home Mortgage. On July 31, RAIT reported net equity exposure of about $95 million to American Home.

RIPE FOR THE PICKING

But the mortgage mess has created bargains ripe for the picking.

Countrywide Financial Corp CFC.N announced plans on Tuesday to buy five retail mortgage branches from HomeBanc Corp HBM.N, which is leaving the business after its stock was delisted last week for trading around 30 cents a share.

HomeBanc of Atlanta also said it was no longer funding loans or taking mortgage applications.

Countrywide, the largest U.S. mortgage lender, said it was not paying a cash premium for HomeBanc's assets.

Banks around the world are also feeling the aftershock and are scrambling to reduce their exposure to U.S. residential borrowers and tighten lending standards.

Washington Mutual Inc (WM.N) said it was tightening standards on loans that feature limited documentation.

UBS AG (UBSN.VX) announced on Tuesday it is only buying mortgages whose borrowers have documented income and other important information, according to a memo obtained by Reuters.

Meanwhile, in Frankfurt, IKB (IKBG.DE), the German lender facing potential losses on investments in U.S. subprime mortgages that threatened its collapse, said in a statement it was setting up a crisis task force and would move 2.4 billion euros of subprime investments onto its balance sheet.

IKB, which specializes in lending to small companies, has become Europe's highest-profile casualty of the U.S. subprime mortgage mess.

(Additional reporting by Dan Wilchins in New York)