Smaller Lenders Feel the Credit Squeeze

Boutique banks on the edge as liquidity crisis wears on
By Heather McPherson,  Newser User
Posted Aug 15, 2007 11:03 AM CDT
A sign advertises a bank repossessed home for sale in San Clemente, Calif., Sunday, Aug. 5, 2007. The Federal Reserve, trying to calm turmoil on Wall Street, announced Friday, Aig. 10, 2007 that it will...   (Associated Press)
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(Newser) – As the subprime fallout continues and the credit squeeze tightens, thousands of smaller-scale mortgage banks find themselves in dire straits. The Wall Street Journal reports that small- and medium-sized lenders, even those with excellent credit quality, are suspending funding and laying off employees, which leaves giant corporations to grab more of the (shaky) market.

The Journal dissects the case of Thornburg Mortgage, a respected lender specializing in loans too big to be sold to Fannie Mae and Freddie Mac, the two government-sponsored investors. Buyers of mortgage securitiess are so terrified they won't touch anything that "Fannie and Freddie" cannot guarantee. The result: Thornburg liquidity is drying up, and its stock price dropped 47% in just one day.