American Home Mortgage Investment Corp., a national home lender doing business in Hawai'i, plans to shut its mortgage business down, becoming the second-biggest residential lender to fail this year as bad loans spread to people with good credit records.

The last day for most employees will be today, chief executive Michael Strauss told the staff in an e-mailed memo obtained by Bloomberg News. Investment bankers cut off credit earlier this week, leaving the Melville, N.Y.-based company unable to fund at least $750 million of mortgages promised to thousands of now-stranded borrowers.

The company has about 40 agents spread among five offices in Hawai'i — Downtown and in Kapolei on O'ahu, in Wailuku and Lahaina on Maui, and in Kapa'a, Kaua'i — according to state Department of Commerce and Consumer Affairs records.

A local American Home Mortgage representative could not be reached for comment yesterday, and it was unclear how many Hawai'i consumers might be affected by the company's dire situation.

Yesterday afternoon, company founder Strauss sent an e-mail to employees saying, "American Home Mortgage has been forced to close." It said that today will be their final day of employment.

"Conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that our business is no longer viable," Strauss wrote. The stock dropped more than 95 percent this year.

Shares of U.S. home lenders have been hurt as defaults spilled over from subprime borrowers with the worst credit histories to people with more reliable records. American Home specialized in mortgages for people with good credit who don't qualify for the best loan terms.

Company spokeswoman Mary Feder didn't return a call seeking comment. In a statement released on Business Wire, American Home Mortgage confirmed it is reducing its workforce by almost 90 percent, to 750 employees from 7,000.

The statement also said the company is maintaining its thrift and servicing businesses, but has ceased taking mortgage applications.

The stock, which traded at almost $40 two years ago, fell 3 cents to $1.45 on the New York Stock Exchange. The shares sold for as little as 68 cents after the close of regular trading. Billings, Ramsey Group Inc. analyst Paul Miller said the price is headed for zero.

"The next announcement will be the liquidation of the company's assets or some type of sale of the origination and servicing platform," Miller wrote in a note to investors. "We do not believe the common shareholders will have any recovery."

A group of American Home's creditors are hiring FTI Consulting Inc., a Baltimore-based advisory firm specializing in bankruptcies and financial restructurings, said Ronald Greenspan, senior managing director in FTI's Los Angeles office. The firm served this year as a financial adviser to creditors in the bankruptcies of New Century Financial Corp., Mortgage Lenders Network USA Inc. and ResMae Mortgage Corp.

American Home said this week that it has hired Milestone Advisors LLC and Lazard Ltd. as advisers. Milestone represented ResMae before that lender's bankruptcy filing in February. New Century, the biggest independent U.S. subprime lender until it filed for bankruptcy in April, used Lazard.

American Home employed about 7,400 people at the end of 2006, according to regulatory filings. Last year, it made almost $60 billion in loans, making up about 2 percent of the U.S. residential market. Countrywide Financial Corp., the biggest mortgage company, had 16 percent of the market.

American Home said July 31 that it was trying to resolve the situation in a way "that is least disruptive to its business and to the many thousands of home buyers to whom it has committed to provide mortgages."

More than 70 mortgage companies have sought buyers or closed since the start of 2006, according to Bloomberg data. Of those, at least half a dozen have declared bankruptcy.

American Home offered Alt-A mortgages, for A-rated borrowers who can't satisfy all the terms for a regular prime mortgage. The company was the 13th-biggest U.S. home lender last year, according to data from trade publication Inside Mortgage Finance.

Bids for American Home's loans from Wall Street firms that assemble mortgage-backed securities began falling earlier this year after defaults on U.S. subprime mortgages rose to the highest since 2002. Traders and investors were concerned that lax underwriting standards and growing fraud might presage rising defaults on Alt-A loans.

"No one wants the product, so if no one wants it, you're not going to originate it," said Vincent Arscott, an analyst at Fitch Ratings in New York. "The only thing that investors are willing to take on are straight prime, plain-vanilla products with no strings attached."

Wall Street firms that financed American Home's lending operations by extending credit lines demanded that the company post additional collateral to cover any losses. American Home couldn't come up with enough cash.