NEW YORK (Reuters) - American Home Mortgage Investment Corp plans to close most operations on Friday and said nearly 7,000 employees will lose their jobs as the lender becomes one of the biggest casualties of the U.S. housing downturn.

Experts said it is likely the Melville, New York-based company will have to seek bankruptcy protection, and no later than Monday.

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“We are sitting on a time bomb,” the mortgage analyst said — a huge increase in unconventional home loans like balloon mortgages taken out by consumers who cannot qualify for regular mortgages. The high payments, he continued, “are just beginning to come due and a lot of people who were betting interest rates would come down by now risk losing their homes because they can’t pay the debt.”

He would have given great testimony at the current Senate hearings on subprime mortgage lending. The only problem is, he said it in 1981 — when soon after several of the alternative mortgage products like those with adjustable rates and balloons first became popular.

When Senator Christopher J. Dodd, Democrat of Connecticut, gave his opening statement last week at the hearings lambasting the rise of “risky exotic and subprime mortgages,” he was actually tapping into a very old vein of suspicion against innovations in the mortgage market.

Almost every new form of mortgage lending — from adjustable-rate mortgages to home equity lines of credit to no-money-down mortgages — has tended to expand the pool of people who qualify but has also been greeted by a large number of people saying that it harms consumers and will fool people into thinking they can afford homes that they cannot.

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Below is the latest e-mail sent from a New Century AE to his brokers:

I know that many of you are following the news and the blogs regarding New Century.  I have tried my best to answer questions as they arise.  It has not been nor has it ever been my intention to keep anyone in the dark.  Here is the latest word from Corporate. 
 
Morgan Stanley has agreed in principle to purchase New Century.  They are in progress now of filing the agreements with the SEC.  New Century is unable to accept any new borrower’s applications, or send docs out until the transaction is complete (I was told mid-next week…..but don’t hold me to it…..it may be longer or it may be shorter.  I will let you know).  If you currently have a deal that is submitted, we will still gather your conditions and get the deal ready to go so that, as soon as we are cleared, we will send out your docs.
 
If you have any scenarios, I will still look at them and price them out.  I am unaware of any guideline changes as a result of the sale.
 
I know that this has been a trying time for all of us, and I know that many were concerned about sending New Century your loans.  Fear not.  We value our relationship with each and every one of you and look forward to providing nothing less than stellar service to you and your borrowers.  
 

Late Wednesday several lenders, including Taylor Bean & Whitaker, American Brokers Conduit and Option One, announced major changes to their Alt-A guidelines by increasing the minimum required credit scores and reducing the maximum loan to value ratios on most of their programs. Below is the announcement sent by one of the lenders to all its brokers:

Alt-A Underwriting Changes

Due to rapidly deteriorating market conditions, we will be making the following adjustments to our Alt-A underwriting guidelines:Minimum FICO score of 620 for Full Doc loans

Minimum FICO score of 620 for Full Doc loans
Minimum FICO score of 640 for Full Doc investment properties
Minimum FICO score of 640 for SIVA
Max LTV/CLTV 90% for SIVA Investment property
Minimum FICO score of 680 for SIVA Investment Property
Max CLTV of 95% for SIVA and SISA doc types
Minimum FICO score of 660 for SISA
Investment properties are not an eligible occupancy for SISA
NIQ and No Doc loans will require a minimum FICO score of 720
Max LTV/CLTV 50% for No Doc
Investment properties are not an eligible occupancy for NIQ
No Doc loans only allow for primary residency
SIVA, SISA, NIQ & No Doc loans not eligible in Ohio