Updated from 2:50 p.m. EDT

American Home Mortgage's

( AHM) plummet continued to drag down the financial sector Friday, as other lenders bore the brunt of a residual share-price beating.

AHM, based in Melville, N.Y., announced last night that it's

laying off 6,000 workers, or roughly 90% of its workforce, as it shuts down most of its operations due to deteriorating housing-market conditions. CEO Michael Strauss said market conditions have left the company with "no realistic alternative." Shares gave up 52.1% to 69 cents in a flurry of trading Thursday.

Several other lenders charged downhill on AHM's heels, including

Impac Mortgage

(IMH) - Get Impac Mortgage Holdings, Inc. Report

, which slid 26.2% to $1.66;

IndyMac Bancorp

( IMB), off 6.6% to $19.66;

Fremont General

( FMT), down 16.5% to $4.49; and


(CIT) - Get CIT Group Inc. Report

, which lost 4.9% in heavy trading.

Accredited Home Lenders

( LEND) bucked the trend, as the subprime lender made a partial recovery from Thursday's

precipitous fall. In the company's year-end filing, it warned investors about the shaky state of its financial health. Shares closed up 31.3% to 6.97.

Bear Stearns

( BSC) also contributed to the dark mood after Standard & Poor's lowered its outlook on the broker's credit rating to negative from stable, citing Bear's recent

TheStreet Recommends

hedge fund troubles. Shares were losing as much as 7% this morning, before a

retaliatory press release provided some relief. Shares were off 6.3% at $108.35.

Elsewhere, broker

Knight Capital


gave back 5.3% to $13.29, after announcing that Chief Financial Officer John Howard will leave, effective Aug. 10, to be replaced by company veteran Steven Bisgay. And Germany's


( AZ) reported a 13.7% per-share profit decline to $6.69 (4.85 euros) in the second quarter. Shares of the insurer surrendered 3.1% to $21.

All but two of the above names were weighing on the


Financial Sector Index, which tumbled 284.3 points, or 3.1%, to 8764.28. The KBW Bank Index lost 4.1% to 101.84.

Insurance companies ranked among the scarce financial winners Friday, and among them was

National Interstate


. Shares jumped 8.2% after the firm handily topped Wall Street estimates with income of $11.9 million, or 61 cents a share, vs. Thomson Financial's 52-cent consensus.

Fellow insurer

Odyssey Re


reported a year-over-year earnings drop but still garnered an upgrade to buy at Ferris Baker Watts, and

Meadowbrook Insurance


was raised to aggressive buy at KeyBanc Capital Markets. Odyssey shares climbed 2.4% to $36.06; Meadowbrook was up 2% to $9.02.