Mortgage Woes Spur Dow Nosedive

Key Stock Index Plunges More Than 240 Points Amid Concerns Over Subprime Lenders' Troubles

(CBS/AP)  Stocks plunged Tuesday, driving the Dow Jones industrials down more than 240 points to their second-biggest drop in almost four years, as troubles piled up for subprime lenders.

Investors, bracing for a wilting economy, fled the already deflated subprime mortgage sector on more news that lenders New Century Financial Corp., Accredited Home Lenders Holding Co. and General Motors Acceptance Corp.'s residential unit are facing financial problems. The Mortgage Bankers Association bolstered the belief that the struggles are widespread after it said new foreclosures surged to an all-time high in the last quarter of 2006.

All three major stock indexes were knocked down about 2 percent.

“The market's still jittery, and they're starting to get full-blown concerns over a bleed in the larger subprime mortgage market,” said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds.

Subprime lenders provide mortgages to people with poor credit.

Tighter credit will mean fewer buyers, CBS News correspondent Anthony Mason reports, and foreclosures will dump more houses on the already glutted market, putting downward pressure on prices.

Though they are a relatively small part of the U.S. economy, their difficulties raise larger concerns about the housing market, which until its slowdown in recent years was a big source of money for consumers. That, coupled with the Commerce Department's report Tuesday that U.S. retailers eked out a meager 0.1 percent rise in sales last month, led Wall Street to reconsider whether Americans' buying power will withstand an economic slowdown.

Tuesday's selloff was accentuated by options expiring soon and by volatility that has increased since the market's big plunge on Feb. 27 — a 416-point drop in the Dow that was caused partially by the escalating distress among subprime lenders.

The Dow fell 242.66, or 1.97 percent, to 12,075.96. On March 24, 2003 the index dropped 307 points when U.S. casualties began mounting in Iraq.

The blue chip index is now down about 710 points, more than 5 percent, from its record close reached Feb. 20. Many market watchers suspect that the market's correction is not over.

The Dow is still above the low for the year of 12,050.41 reached March 5 and has yet to slip below the 12,000 level, which it reached for the first time last October.

Broader stock indicators also fell by their largest amounts in two weeks. The Standard & Poor's 500 index fell 28.65, or 2.04 percent, to 1,377.95, and the Nasdaq composite index slid 51.72, or 2.15 percent, to 2,350.57.

Consolidated volume on the New York Stock Exchange, where declining issues outnumbered advancers by 5 to 1, was high at 3.49 billion shares — more than the 2.62 billion shares traded a day earlier, but lower than the 4.56 billion shares traded on Feb. 27, when the Dow took its largest plunge since Sept. 17, 2001.

Trading collars were triggered Tuesday afternoon when the New York Stock Exchange Composite index lost more than 180 points. The collars put a chokehold on certain orders, forbidding transactions that capitalize on discrepancies in prices.

Subprime lending jitters and sluggish retail sales drove up bond prices. The yield on the benchmark 10-year Treasury note fell to 4.50 percent from 4.56 percent late Monday.

Gold prices fell, and the dollar was lower against most major currencies. A drop in the dollar versus the yen renewed anxiety about traders unwinding their yen “carry trades,” or taking money out of high-yielding dollar assets bought with the low-yielding yen.

The subprime worries have been mounting for weeks now, but came to a head when the New York Stock Exchange took steps to delist shares of New Century, which said Tuesday that the Securities and Exchange Commission would be probing accounting errors that inflated its loan portfolio.

“Investors are poking around to see how much rotted wood there is here,” said Jack Ablin, chief investment officer for Harris Private Bank. “It looks like the notion was subprime was contained, and now we're starting to see that maybe this problem has moved into other areas of the market. That's causing investors great concern.”

Accredited Home contributed to the anxiety after it said it is in need of cash. Its shares plunged $7.43, or 65 percent, to $3.97.

Wall Street sold off further when the Mortgage Bankers Association's quarterly report on the mortgage market seemed to confirm investors' worries that the entire sector is floundering and could weaken further: not only did new foreclosures hit a record high in the fourth quarter of last year, but late mortgage payments soared to a 3½-year high.

Late in the session, General Motors Acceptance Corp. — General Motors Corp.'s part-owned financing arm — reported that its fourth-quarter profit rose, but struggles in its Residential Capital LLC unit were eating into earnings. That news gave investors extra motivation to sell.

“The fear index is rising,” said Steven Cochrane, senior managing director for Moody's Economy.com. “(Subprime mortgages) are our No. 1 concern right now.”

That anxiety hit stocks of homebuilders, as lending obstacles could further cripple the lagging housing market. D.R. Horton Inc. fell 86 cents, or 3.7 percent, to $22.31; Centex Corp. lost $2.15, or 4.8 percent, to $42.76; and Toll Brothers Inc. dropped 67 cents, or 2.4 percent, to $27.34.

Investors trying to gauge how far problems in the subprime sector have spread pounced on comments from Goldman Sachs Group Inc. The investment bank said that while the subprime sector showed “significant weakness,” the broader credit environment “remained strong.” Goldman Sachs fell $3.57 to $199.03, despite record first-quarter profit thanks to strong revenue from trading and investment banking.

Government data on Tuesday suggested that consumer spending might be getting crimped. The Commerce Department said sales at U.S. retailers rose 0.1 percent in February as wintry weather in much of the country kept shoppers away from stores. Investors had expected an increase of 0.3 percent from January.

“I think a big question mark on this is how much of this is weather-related,” said Rob Lutts, chief investment officer at Cabot Money Management. “We had two or three days during the month which knocked out activity. ... I think it is causing a little bit of alarm short-term.”

Several retailers stumbled following the Commerce Department's report. Federated Department Stores Inc., parent of Macy's and Bloomingdale's, fell 85 cents to $44.09; Wal-Mart Stores Inc. slid $1.08, or 2.3 percent, to $46.18; and Target Corp. fell $1.76, or 2.8 percent, to $60.47.

Traders now await the producer and consumer price indexes, scheduled to be released Thursday and Friday, respectively. The two inflation gauges should give investors a better idea of whether costs are escalating too fast, and if the Federal Reserve might give consumers some relief by lowering interest rates later in the year.

Of the Dow's 30 blue chip stocks, the only gainer was AT&T Corp., which rose 20 cents to $37.26.

The Russell 2000 index of smaller companies fell 19.88, or 2.52 percent, to 769.12.

Overseas, Japan's Nikkei stock average fell 0.66 percent. Britain's FTSE 100 fell 1.16 percent, Germany's DAX index fell 1.36 percent, and France's CAC-40 fell 1.15 percent.

Light, sweet crude fell 98 cents to settle at $57.93 per barrel on the New York Mercantile Exchange.

[macusweil]

Bush will leave this economy in ruins by 2008 just like he has already done for the Armed services, VA healthcare, Katrina relief and government's ability to provide reasonable oversight of big business.

[stevex47]

You'd think there was something this administration had done thats good. But I cant even think of one thing. The best thing they will do is leave.

[jimduffy5]

It's obvious that we are out of control!The trade agreements have sucked alot of good paying jobs out of America,and China owns us!. Alot of people can't afford to buy a new car or a house living on low wages and with energy and medical costs skyrocketing. The puppet in the whitehouse will probably go down as one of the worst in history.Maybe we all need to get a little more involved in politics and hold the elected officials accountable. A government for the PEOPLE and not for the lobbyist crowd would be a good place to start.

[bildooreilly]

Governments on all levels, school districs, cities, counties, states, feds are all hiding trillions of surplus tax dollars from the american people. They run a double bookkeeping scam on us, the "budget" is just a shell game... It's like if I were making $1000 a week and told my wife our "budget" was $20.... This is no conspiracy theory, the real numbers with all of their liquid assets, investments, and profit centers are in their other book called the CAFR or Comprehensive Annual Financial Report... 85,000 CAFR's are filed every year in the USA. Check out www.cafr1.com for the truth and never vote for any kind of tax hike again, what a bunch of lying thieving evil people running our country... Sitting on all of that money then kicking old people out of their homes when they can't pay their taxes, when they should be sending us all dividend earnings checks instead of a tax bill in the first place, what a bunch of slimeballs running our government on all levels..... wake up folks!

[magoomba2]

I can hear all the oinking, reeting, and squealing from here!!! HAHAHAHAHAHAHAHAHAHA!!!!
I will delight to see all your inflato stocks become WORTHLESS, just as you who hold them actually are yourselves!

As for the hapless, witless screwees of your mortgage scams, they will never understand or care anyway, credit sucking fools who will take any crumb that is thrown to them, and trash your foreclosures anyway.

There are still a few deserving, hard working homeless Americans who would never indebt themselves to the pigs, frugally struggling and saving, who will be happiest at your demise. And
they may actually get the chance to buy themselves a property to own free and clear if prices fall far enough. THIS would be JUSTICE, and the true American dream.
I know that every stop will be pulled to keep this from happening, but the laws of nature do eventually come through in the end.

[hypnotoad72]

Okay folks, get a grip! These ups and downs have happened before. It'll happen again.

And Bush allowing so much offshoring is what has hurt the most. I don't mind nation-building, but why at the cost of this nation? And as we are tied to a global economy, nobody will want to let that break either.

Besides, the last I heard, some jobs are coming back. And the more people who make their own SMBs, the better. We can't rely on big corporations all the time and maybe that's an indirect tangent of all this too? (or is it more fun to listen to people in waiting rooms saying "I now go to ___ because the person I used to work with charges too much, waaaaaaaaaah." then they whine about the quality of service they get... Blistering idiots.)

Regardless, chill. That's C.H.I.L.L.. This isn't bloody doomsday.

[juliemd]

I'd love to see home prices come crashing down. Especially here in the West you have to make $100K a year to buy a home, at least in any decent metropolitan area.

[mdmx66]

Look what happens when scum bag lenders make all these mortgage loans to illegals then the tide turns. Too bad so sad. No scum bag predatory lender bail out from Congress, please.

[alphaa10-2009]

The housing bubble has burst, and a skittish Wall Street reacted as expected. The bad news hit the White House especially hard. Economists early had warned Bush of excessive dependence on dthe housing market and gross dependence on federal notes floating into foreign hands-- the kind of out-of-control deficit spending which would put ordinary Americans into bankruptcy court.

But Cheney, the one who said, "Trust me" on Iraq WMDs, is also the one told us, "Trust me" on Bush deficit spending. Cheney had the hubris even to lecture former Sec. of Treasury Paul O'Neill, insisting "Reagan proved deficit spending doesn't matter."

Where is Cheney, now? With not one, but two pies-in-the-face, Cheney is in a poor position to lecture anybody, anywhere about fiscal straight-shooting, figuratively or literally.

[jw218389]

ANOTHER Bush ***!!!!!!

This whole mess is because the Middle Class (what's left of it ) was prospering from the low prime rate.

At the same time time BILLIONAIRES were only making hundfreds of thousands off interest instead of MILLIONS so they pressure the CHIMP to raise the Prime Rate...

ANOTHER Middle Class ***!!!!!

[feelfree1]

...and then we have the blood and treasure costs of the war:

"America won't simply be paying with its dead. The Pentagon is trying to silence economists who predict that several decades of care for the wounded will amount to an unbelievable $2.5 trillion."

www.newstatesman.com/200703120024

[standlee5]

feelfree1, and that number will probably triple and quadruple. It's important we honor our wounded vets with quality care.

[book54552134]

I didn't see any stats on the actual amount of families that are losing their homes due to foreclosure but if these mammoth mortgage companies are hurting financially, the number must be huge.
No family wants to lose their home to foreclosure. It is always a last recourse & is a almost always a very distressful event for any family.
If these mortgage companies are going to try to make money from poor & lower income families, the government must do it's part to help raise the economic prospects of these people. Such government assistance intervention, assists not only the working classes to rise a bit out of poverty, but also helps to protect the economic base of the Republic (which includes mortgage bankers.)
Unfortunately, since the advent of the Reagan Administration, the government's perspective is that the lowest classes exist for the purpose of exploit & businesses of all sort are encouraged to take all possible advantage of these people.

[drinuk]

There are many Brits who would love to retire in America, buying property outright, bringing their money and many providing business expertise.
However, US immigration excludes us, you would rather fund any other nationality especially those who do you most harm. We are good enough to fight alongside you but not good enough to live down your street.