When the subprime tidal wave crashed to shore last fall, it left the riskiest borrowers, lenders and investors floundering in its wake.

Many experts predicted the problems would stay contained within the highest-risk areas of the mortgage market. Recent announcements by national lenders American Home Mortgage, National City Home Equity and Aegis Mortgage Corp. that they had stopped funding loans are just one indication that it’s no longer just subprime lenders and borrowers that are struggling. All three companies specialize in so-called Alt-A lending, typically to borrowers with strong credit who, for one of a variety of reasons, may not meet all the requirements for a prime, conforming loan.

Melville, N.Y.-based American Home Mortgage announced July 31 that it could no longer fund outstanding loans and filed for bankruptcy protection on Aug. 6, the same day that National City Home Equity, a division of Cleveland-based National City Corp., a top-10 prime and Alt-A lender, said it would stop funding new home equity lines of credit. Aegis Mortgage Corp., a prime and Alt-A lender based in Houston, also stopped accepting new loan applications Aug. 6, and said it could no longer fund existing obligations. All three firms do business in Massachusetts.

Credit-rating agency Standard & Poor’s also placed 207 classes of Alt-A loan-backed securities, representing mortgages originated from fall 2005 through 2006, with a total original balance of $914 million, on “CreditWatch negative” last week, the financial Web site MarketWatch reported.

Alt-A loans are considered less risky than subprime mortgages but of a lesser credit quality than prime loans. Alt-A borrowers often meet Fannie Mae and Freddie Mac credit score standards but do not meet the guidelines for documentation, property type, debt ratio or loan-to-value ratio and subsequently are charged a higher interest rate.

Nationally, the 60-day delinquency rate for Alt-A loans for all lenders was 3.67 percent in May, up from 1.18 percent in May last year, according to San Francisco-based First American Loan Performance, which tracks loan performance. That compares to a 60-day delinquency rate for prime loans of 1.2 percent in May this year, which remained almost unchanged from a May 2006 rate of 1.15 percent. Alt-A loans make up roughly 10 percent of all mortgages in the United States, according to the company.

“Unconventional lending has now gone away,” said Kevin Cuff, the executive director of the Massachusetts Mortgage Bankers Association. “It’s retraction of the marketplace. Wall Street and the investors have gotten skittish about all kinds of lending.”

That means lenders are finding it difficult to sell not only subprime loans but also Alt-A mortgages on the secondary market.

“Wall Street is completely shying away from Alt-A pools of money,” added lender Howard Miselman, president of Stoughton-based Continental Funding Corp.

‘Unprecedented Disruption’

Loans still available to Alt-A borrowers have seen interest-rate hikes of a point or more in the past couple of weeks, and 100-percent finance loans also are much harder to come by, Miselman said.

Cuff said home equity lines of credit and “investment lending” to borrowers who don’t intend to live in a home have virtually disappeared from the market in recent weeks.

Brian Koss, a managing partner with Mortgage Network in Danvers, said second mortgages – smaller secondary loans offered to borrowers in lieu of down payments as a way to avoid paying private mortgage insurance – also are becoming scarce.

American Home Mortgage attributed its decision to stop funding loans to being “unable to borrow on its credit facilities” and “unprecedented disruption now occurring generally in the secondary mortgage market.”

Thirty-eight Massachusetts mortgages promised to borrowers did not close during the last week in July due to company’s difficulties. The state Division of Banks ordered AHM to stop accepting new loan applications on Aug. 2 and is working to find lenders and brokers willing to take on those customers left in the lurch.

While the speed with which Alt-A lenders are losing steam has surprised many industry watchers, some said there had been plenty of warning signs that problems were brewing.

“Rumors had been around about American Home,” Cuff said. “It was consistent, as it was with New Century and Mortgage Lenders Network,” he said, referring to two national subprime lenders that ceased operations this year after Wall Street investors cut them off when loan defaults started to rise.

The rumors, Cuff said, hinted that investors were insisting lenders pay back their lines of credit when losses and risk level in pools of Alt-A loans increased, causing their values to decrease.

“That jeopardized wholesale lines of credit,” Cuff said. “It led to the lenders having more loans committed than they could fund.”

The heavily watched Mortgage Lender Implode-O-Meter Web site, run by Georgia computer scientist Aaron Krowne, also reports insider rumors about companies that are ailing as a result of rising loan payment delinquencies and defaults.

California-based GreenPoint Mortgage shut down 13 U.S. branches and laid off 440 employees in June, according to the site. IndyMac Bancorp and Countrywide Financial, two other companies that fund Alt-A loans, have so far escaped mention of problems on the Web site, www.ml-implode.com. However, IndyMac Chief Executive Officer Mike Perry reportedly announced this month the bank would begin offering more prime-market “conforming” loans in response to the secondary market’s declining interest in anything different.

Koss, of Mortgage Network, predicted that “by your next issue, you are going to have another couple of [company failures like] American Homes.

“Most entities just can’t make money in this business because they can’t sell the loans” on the secondary market anymore, he said.

Koss said the “greed” and the “lack of history” of lenders who hadn’t seen previous market ups and downs, and thus increased overhead faster than they should have when lending and homebuying was booming a few years ago, are to blame for many of today’s shutdowns. “Wrong assumptions [about borrowers] or a combination of assumptions and a lack of due diligence” on the part of some Wall Street investors buying the loans also played a part in creating the recent market tribulation, he suggested.

Alt-A borrowers are generally those who have one slightly less-than-perfect credit or risk factor. For example, a credit score slightly lower than 660, a low down payment, or limited or no documentation of income could put a borrower in that category.

While Alt-A borrowers are statistically more likely than prime borrowers to default, they also are less likely to refinance, according to Nomura Fixed Income Research, a division of Tokyo-based Nomura Securities Co. Until recently that made Alt-A loans attractive to investors, according to lenders.

Theories abound on why Alt-A loans now are failing so fast, but many industry experts point to one type of Alt-A mortgage in particular.

“A lot of what you’re seeing [perform poorly] in the Alt-A [market] is about a specific product: stated-income loans,” said Ren Essene, a research analyst at Harvard University’s Joint Center for Housing Studies.

No- or limited-income documentation loans typically are not welcomed in the prime market, noted William C. Wheaton, professor of economics at the Massachusetts Institute of Technology and director of research at the university’s Center for Real Estate.

“In the conforming pools you have to conform to documentation and credit score standards. There’s no monkeying around,” Wheaton said.

“I think it’s inviting adverse selection to offer no-doc loans,” he said. “You know the people have a problem with income.”

If defaults on Alt-A loans go higher, he added, “I think [the investors] got what they deserved.” American Home Mortgage investors are parties to at least two class-action lawsuits filed in the past two weeks that claim the company misrepresented its financial condition and revenue expectations in 2006 and 2007.

While problems within the mortgage industry now have extended beyond the subprime market and into the Alt-A arena, many industry watchers say the difficulties are unlikely to spread to prime loans.

Koss predicted that if Alt-A defaults do extend to the prime market, it will only be because some prime loan securities bundles are packaged together with Alt-A mortgages.

But even if that happens, he and others predicted, the effect will be minimal.

Wheaton, however, said there might be a small increase in foreclosures in the prime market for a different reason. As housing prices fall, he suggested, some borrowers who have little equity and cannot sell their homes might choose to default voluntarily on a loan.

“Your credit rating would be destroyed – but only for a year,” he said. While the default would affect the borrower’s credit, Wheaton said, many could still qualify for another loan as little as one year later.

Essene predicted the Alt-A market troubles will have little effect on the prime market.

“The prime market is already trending very differently,” she said, citing a recent survey from the Washington, D.C.-based Mortgage Bankers Association, which showed that since 2002, prime- loan delinquencies of 60 days or more have risen at just one-fifth the rate of all non-prime loans.

What is likely to result, she predicted, is the availability of fewer unconventional loan products because “investors are going to be nervous about diving back in.”