The mortgage market fire is growing bigger and bigger this month, and August has just begun. On the heels of severely disabling margin calls, C-BASS announced on Friday that it has retained The Blackstone Group as financial advisor to assist the company in finding additional ways to secure capital in order to keep the fasting sinking company afloat.

Then NovaStar Financial announced that it has suspended funding or approving loans in its wholesale-lending unit as a result of "severe dislocation in the secondary market." The firm recently received an investment of $48.8 million by MassMutual and Jefferies Capital Partners in the form of convertible preferred stock as well as a commitment to purchase up to $101.2 million of any unsubscribed shares of an upcoming shareholder rights offering for a similar series of convertible preferred stock in order to raise $150 million in equity for NovaStar.

Meanwhile, American Home Mortgage Investment of Melville, N.Y., announced it was closing all but its thrift and servicing businesses and laying off 6,250 of its 7,000 employees. At the same time, it filed for Chapter 11 in order to preserve the value of the company's assets since it has ceased taking loan applications. The company said it is highly unlikely that these values will be sufficient to pay its creditors in full, and there will likely be no shareholder equity value remaining. In conjunction with the filing, WL Ross & Co., through its fund WLR Recovery Fund III, L.P., has agreed to provide the company with up to $50 million in debtor in possession (DIP) financing.

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