Toll Brothers (TOL) - Get Toll Brothers, Inc. Report was cut to a sell rating by a Bank of America analyst who said the luxury-home builder's buyer pool has been drained by the broad distress in the mortgage market.

Analyst Daniel Oppenheim wrote in a research note Tuesday that demand for new homes should decline 35% this year. That projection is down an additional 20% from Oppenheim's estimated impact from the subprime fallout earlier this year, he said.

Toll Brothers, in particular, will be hurt since many of the company's buyers use jumbo loans, which have become much harder to secure, he said. Jumbo loans are non-conforming mortgages above $417,000, which government-sponsored mortgage investors

Fannie Mae

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and

Freddie Mac

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cannot purchase.

The rates on jumbo loans are now 50 basis points above conforming mortgages, as the securitization market has effectually shut down for such loans, he said.

Oppenheim cut his price target on Toll's stock to $19 from $29.

"Even when liquidity returns to the mortgage market, we think the greatest impact will be on the wider spreads for non-agency mortgages, especially Alt-A," Oppenheim wrote. "We expect the cancelled homes and increased foreclosures will add to inventory and lead to price declines and lower appraisals, further crimping mortgage availability."

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Shares of Toll, which reports its fiscal third-quarter earnings on Wednesday, recently were down 4.4% to $21.05.

Oppenheim also lowered his rating on builders

Hovnanian

(HOV) - Get Hovnanian Enterprises, Inc. Class A Report

and

Standard Pacific

(SPF)

from buy to neutral. His price targets dropped from $19 to $12 on Hovnanian and $19 to $10 on Standard Pacific.

The analyst also cut his price target on neutral-rated

Ryland

(RYL)

from $40 to $30.

In early trading, Hovnanian shares were slipping 2.4% to $12.01. Standard Pacific was down 6.9% to $9.16, and Ryland was falling 1.7% to $31.33.