An anxious stock market, always looking for the next subprime related Blowup, has been providing the mortgage industry whiplash. Thornburg Mortgage (TMA), for example, fell 47% on Tuesday and then was back up to 39% next day.

There is no doubt things are looking terrible in the mortgage industry. But there is a lively debate about how terrible. Analysts, investors and executives agree that the mortgage company is the next trip and to fall into bankruptcy.

As Keefe, Bruyette & Woods analyst Frederick Cannon wrote this week, the main lenders “are in a crisis mode.” The decline in housing industry means fewer mortgages to get started. An increasing number of Americans can not make payments on their mortgages, subprime loans and other types, causing an increase in delinquencies and defaults. They can not refinance, both by value of the house has been reduced and because the Fed has not cut interest rates.

Those are all reasons for concern, but the most immediate concern for businesses of mortgages is the horrendous conditions in the secondary market.

The market share of mortgage-backed securities are essentially frozen, which means that investors are unwilling to buy mortgage debt at all.

That’s bad news for stand-alone mortgage companies like American Home Mortgage (AHMIQ) (which recently declared bankruptcy), because re-sale of debt on the secondary market is how these companies raise cash to continue making loans .

But what about companies like Thornburg Mortgage, a real estate investment trust or REIT, which tends to buy and maintain high quality of the loans? Or Countrywide Financial (CFC), the industry giant that is expanding rapidly to take over market share, while smaller and weaker rivals disappear?

Thornburg shares fell by nearly half when the company said it was delaying the payment of dividends for one month. The move was designed to save cash to meet its creditors demands. A similar move by American Home Mortgage preceded bankruptcy a few days. Jefferies analyst Richard B. Shane reacted to the news writing: “Given the serious liquidity crisis, we do not recommend investors hold shares of TMA at any price.”

On Wednesday, Thornburg shares returned after executives said that bankruptcy is not in the cards. “I’m hopeful by the end of this week we will be completely out of this situation,” President Larry Goldstone told CNBC.

It is true that Thornburg is different from other mortgage brokers. Their “loan portfolio is very high quality,” wrote Shane.

However, it does depend on the debt leverage of 12 to 1 on certain lines of credit. The hard secondary market that make it hard for Thornburg if, for whatever reason, the company needed to liquidate its portfolio to raise cash. And it may need cash to pay its creditors or dividends because the word in debts. “We believe that the sustainability of the company is currently subject to the whims of Wall Street lenders,” wrote Shane.

“Given this uncertainty,” AG Edwards (AGE) analyst Greg Mason wrote Wednesday, “we choose not to play guessing games.” (Thornburg is a client of AG Edwards investment banking.)

Countrywide is a company quite different from Thornburg, but is also a subject to the whims of its creditors and the secondary market. Its stock plunged on Wednesday afternoon, compared to 13% for the day to unconfirmed reports that the company was having trouble borrowing money. Volume of trade activities in the country is six times the normal daily Standard & Poor’s equity analyst Stuart Pless said, “that leads us to believe that some of the major institutional holders are selling shares.”

Apparently, financially strong and making efforts to boost the reality of its loan originations, the country is the “supermarket” of mortgage lenders offering mortgages from a wide variety of qualities. The company also owns a bank, whose deposits give more stability than other mortgage companies.

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The effects of the global financial crisis, which began in July 1997 with the devaluation of the Thai baht and reached a climax last August with Russia to default and the near collapse of Long-Term Capital Management, work continues through financial markets.

One of the most worrying was highlighted in a report published yesterday by the prestigious Institute of International Finance (IIF). This association of the world’s largest banks predicts another year of weak capital flows to emerging economies in 1999, with indications that lenders and investors are more than ever discrimination in favour of a few countries.

The total net private capital flow to emerging economies was just over $ 140bn (pounds 86bn) in 1998, a sharp decline from 1997 total of $ 263bn last year and the record $ 328bn. The IIF expects that this year the figure is approaching the same as last year. Within this total there will be some changes. Direct investment remained very well last year to $ 120bn, thanks to bargain prices. But slower growth in the global economy will have a negative effect, reducing this year the figure to an estimated $ 103bn. The IIF expects nothing less than a catastrophic drop in bank lending to emerging markets. Net flows of commercial banks fell from $ 29bn in 1998 and is expected to pass by another $ 11.8bn this year. Through the current non-bank creditors - mainly bonds - are expected to total $ 28bn to $ 49bn later in 1998. Taken together, the flow of private credit is only $ 16bn in 1999, slightly less than in 1998 and down from nearly $ 200bn in 1996. With much of new loans unintentional - the result of interest arrears in Russia and Indonesia - will be a voluntary credit meagre $ 7bn. There is a bright spot. Portfolio capital flows have begun to recover and should increase. The prognosis is $ 20bn, in 1998 the small $ 2BN, as emerging equity markets continue to recover. And in another sign that the crisis is diminishing, official flows are likely to decline. They friolera amounted to $ 51bn last year, but is expected to dip to $ 33.5bn this year, with no new emergency financial charts. Charles Dallara, IIF managing director, estimated the flow of private credit is improving slowly. “A pick-up of the flow seems possible throughout the year passes, assuming key economies remain on track,” he said. John Bond, chairman of the IIF and board chairman of HSBC Holdings, said that there were some encouraging trends. “Fundamentally, the sustained recovery of portfolio capital flows depend on the ability of emerging market economies to perform well.” But the report says there is evidence that lenders and investors are restricting new lending and investment to just a handful of countries. William Rhodes, vice president of Citigroup, said: “There is growing evidence that lenders and investors are more carefully differentiate between emerging markets.” The evidence is in the range of margins bonds in different markets. All spreads between emerging market bonds and safe assets like U.S. Treasury bonds, exploded last August and remain high standards of past, even though they have since declined. But stretches of Asia are lower by far than those for countries americas America and Eastern Europe bonds, and much of the recovery in net new investments reflects an end to disinvestment in Asia that characterized 1998. Moreover, flows to Central and Eastern Europe are still in decline. For example, Brazil still pays around 8.2 percentage points above the odds to borrow in international capital markets, down from a peak of 11.25 percentage points. This compares with a 2.5 percent premium for the bonds in Asia, compared to 9.6 points in August and 3.6 points at the end of 1998. Korea and Thailand are currently in a better position now than before August crisis. The report concludes that there has been a real improvement in only a limited number of high quality borrowers. And investors remained cautious. The report said: “serious political diversion a key factor in the economy could have a major impact on sentiment.” Hence, could also curb growth in developed economies. The low growth in the G-7 will erode and the prospects for creditworthiness in emerging markets. The report also contains a special warning about the dangers of protectionism rampant, especially in the U.S. market so crucial to emerging economies. The dispute over bananas in the EU, the approval of a bill in the House of Representatives imposing steel quotas, the postponement of the entry of China into the World Trade Organization - are all ominous signs of protectionism. The experts’ verdict is that the worst of the crisis is over and signs of normalization are obvious. But the note of caution expressed by the IIF is unmistakable.

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