The 10th largest independent home loan provider in the US, American Home Mortgage has filed for bankruptcy protection as a consequence of the shake out of the slump in the US home mortgage market. It is the largest mortgage bank to file for bankruptcy protection.

On 30 July, the company sent shockwaves through the financial markets when it announced that it lacked the money to pay its lenders or the credit lines to pay its borrowers.

The US home loan market has been hit by rising interest rates that have been pushing up loan repayments, leading an increase in defaults that have hit the bottom lines of mortgage lenders, with sub-prime lenders, who that caters to the riskiest borrowers, has been hit the hardest.

According to a Credit Suisse report an estimated 1.5 million US borrowers were likely to default on their home loans worth up to $220 billion as mortgages move up in line with rising interest rates over the next 18 months.

American Home Mortgage, which had issued $60 billion of loans last year, sought bankruptcy protection from creditors and last week laid off the majority of its staff, retaining only 750, down from over 7,400 earlier this year.

It provided loans to prime and sub-prime lenders and also provided the less common mortgage with adjustable interest rates, while most mortgage providers charge only fixed rates.

With its home loan portfolio rapidly losing value, American Home Mortgage''s financial backers withdrew support and the company ran out of cash. Among its 40 biggest creditors are virtually all the major names of Wall Street led by Deutsche Bank AG, Wilmington Trust and J P Morgan Chase as its top three lenders.