AHM Is in Bankruptcy, Other Servicers in Trouble.(American Home Mortgage)

WASHINGTON -- Three midsized servicing firms failed or closed in August and two others were struggling to bolster their cash positions as the nation's nonprime liquidity crisis worsened during the summer.

In total, the three that went bust -American Home Mortgage, Aegis Mortgage and HomeBanc - serviced $78 billion in residential loans. But only one of these firms, Aegis of Houston, was heavily involved in subprime. (See table.)

AHM and HomeBanc filed for Chapter 11 bankruptcy protection. Both had loan buyback troubles and had been the subject of margin calls.

Owned by hedge fund giant Cerberus Capital, Aegis stopped funding new loans in early August and shuttered most of its production offices, laying off hundreds of workers. Sources say its servicing platform is now on the auction block.

At press time, alt-A servicers Impac Mortgage, Irvine, Calif., and Accredited Home Lenders, San Diego, were trying to preserve cash, hoping for conditions in the secondary market to improve. (Accredited is also heavily involved in subprime.)

Impac is now funding only GSE loans, suspending - for now - production of alt-A.

The largest servicer to fail during the summer was Melville, N.Y.-based AHM, a publicly traded real estate investment trust that relied on $9 billion in warehouse lines of credit. It serviced $50 billion in home mortgages, including many owned by Fannie Mae and Freddie Mac.