This week’s collapse of one big-name investment firm and the takeover of another winnowed the market on Wall Street for bonds sold by Rhode Island’s public housing finance agency to provide low-interest loans for first-time homebuyers.

Since Lehman Brothers Holdings collapsed and Merrill Lynch & Co. was taken over by Bank of America, only two big-name independent U.S. securities firms — Goldman Sachs Group and Morgan Stanley — remain standing.

“I’ve been selling bonds for about 24 years. This is the worst market that I’ve ever seen,” Richard Godfrey, executive director of Rhode Island Housing, said yesterday. “The buyers who we used to sell to are not buying … Just like it’s a hard time to sell a house, it’s a hard time to sell bonds.”

The shrinking pool of investors willing to buy Rhode Island Housing’s bonds is making it more difficult for the agency to raise money for badly needed affordable mortgages during a time of tightening credit. But the agency has already raised enough money to make mortgages through the rest of this year, and Godfrey said that he is confident the agency will find buyers for future bond issues.

The shrinking pool of investors comes as Rhode Island’s housing market continues to deteriorate. House prices are still falling and mortgage defaults are rising. In July, more than one in four single-family house sales were foreclosure or “short” sales, designed to avoid foreclosure, according to the Rhode Island Association of Realtors.

The housing market problems here are compounded by rising job losses (the unemployment rate climbed to 7.7 percent in July) and higher gas and food prices, Godfrey says, which are making it increasingly difficult even for borrowers with otherwise affordable mortgages to make their payments.

“Our biggest concern now is what’s happening to the economy,” Godfrey said. “If hard-working Rhode Islanders lose their jobs in ever greater numbers, that’s really the thing we are most worried about.”

The mission of Rhode Island Housing (formerly the Rhode Island Housing and Mortgage Finance Corporation) is to help first-time home-buyers and those who can’t qualify for traditional mortgages to borrow money to buy a home. That’s important not only to the borrowers but also to the overall economy, because it stimulates borrowing and spending.

Rhode Island Housing raises money by selling bonds to investors. In August, the agency sold $64.72 million to raise money to loan to first-time homebuyers, Godfrey said. The agency offers bonds for sale three to four times a year to replenish the pool of money it has to lend.

“Obviously, we didn’t know this crash was coming, but we anticipated things were going to get rougher so we decided to go [to the bond market] early,” Godfrey said, adding, “I’m glad we did it then.”

Now, with reports of credit tightening, Godfrey is closely watching the market. “Right now, we see no direct impact” on the agency’s bond sales, he said, “but we are extremely nervous … that things could get worse.”

Until recently, one of the biggest buyers of Rhode Island Housing bonds was Fannie Mae, the mortgage finance company that the government took over along with its related company Freddie Mac. The agency’s other two major investment firms — Goldman Sachs and Morgan Stanley — are still in the market.

But increasingly, cash-strapped investors who used to buy the housing agency’s bonds are now scrambling to cash them in, Godfrey said, meaning that more of the agency’s bonds are being marketed to fewer buyers.

Even so, Godfrey said, he is confident that in the long run the quality of the agency’s bonds will keep investors buying. “There are players out there,” he said, including big banks such as Bank of America and Citigroup, as well as smaller, local investors. “We are selling far more bonds locally, to local residents,” he said, who know “we provide a good return and we’re safe.”

Rhode Island Housing reports that its delinquency rate on mortgages has actually declined from a year ago, to 3.56 percent, down from 3.76 percent a year ago. In 2006, it was 3.31 percent. The agency defines a borrower as “delinquent” if the payments are 60 days or more past due.

larditi@projo.com