Another fly hits the floor.

Mortgage lenders are falling like flies. Today, it was the turn of American Home Mortgage Investment to tell its investors about the sorry state of the US housing market. The company slashed its dividend and 2007 profit forecasts. Several analysts quickly responded to the dismal news and downgraded its stock. Subsequently, the share price sank as much as 18.2 percent.

The company cited a lack of buyers for its loans, as well as rising delinquencies, for its lowered forecast. It joined M&T Bank among lenders to cut profit forecasts. Moreover, there are increasing signs that weakness afflicting sub prime mortgages may be spreading to higher-quality loans. American Home specializes in prime and near-prime loans and makes roughly 2.5 percent of all U.S. mortgages.

The disease that nearly destroyed the sub prime market is now spreading to the prime and near prime mortgage market. According to FirstAmerican LoanPerformance, In February, 2.6 percent of Alt-A loans were delinquent by 60 or more days, up from 1.2 percent a year before.

Just wait, soon we will see stories about higher delinquencies among prime mortgage lenders.