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Thursday, March 6, 2008

Wall Street Drops amid Credit Concerns

Stocks tumbled Thursday as the ailing credit market and a spike in home foreclosures intensified the market's worries about a sagging economy. The Dow Jones industrials gave up 214 points.

Concerns about credit grew after Thornburg Mortgage Inc. and a Carlyle Group bond fund revealed troubles with investments backed by mortgages. The entities failed to make margin calls, which are payments to guarantee much larger debt or investments.

And the genesis of the credit concerns that erupted last year -- souring mortgage loans -- dealt investors another blow after the Mortgage Bankers Association reported that home foreclosures rose to record levels in the fourth quarter. Worries about defaults have made lenders hesitant to extend credit, preventing the credit markets from functioning normally.

Wall Street's sense that credit troubles are seeping further into areas of the financial sector once deemed safe weighed on financial stocks and the broader market.

Gold -- regarded as a defensive investment -- slipped Thursday, but remains only about $20 away from the psychological benchmark of $1,000 an ounce.

Bad news about the housing market further dented sentiment. The Mortgage Bankers Association said the proportion of all mortgages nationwide that fell into foreclosure jumped to a record 0.83 percent in the final quarter of 2007. The group also warned that foreclosures are likely to continue to rise as the number of homeowners behind on their mortgage payments has jumped to its highest level since 1985.

The Federal Reserve added more unwelcome housing news in reporting that Americans' debt on their homes exceeds their equity for the first time since the central bank began tracking the figures in 1945. Homeowners' percentage of equity fell to 47.9 percent in the fourth quarter.

Wall Street is worried that Americans distressed about their home values or struggling with mortgage payments will pare their spending. Investors appeared to take an upbeat report from Wal-Mart Stores Inc. as a mixed signal. While Wal-Mart reported stronger-than-expected sales for February, some investors are worried that success at the world's largest retailer reflects increased bargain-hunting by consumers.

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