Subprime mortgage situation hits Wall Street

Bad — or unaffordable — home loans are no longer affecting unfortunate homeowners and lenders.

As the trend of more homeowners defaulting on their mortgages continues to increase, stock market investors are growing concerned with a possible “crisis in regard to subprime loans, according to U.S. News & World Report.

In fact, the Dow Jones industrial average tumbled more than 100 points yesterday, underscoring the impact the situation could have on the broader economy.

Here’s a snip:

“It’s stomach-turning time on Wall Street again. After plummeting more than 242 points Tuesday–and 416 points on February 27–the market began another downward march Wednesday on growing fears that the troubles in the subprime mortgage sector are turning into a full-blown financial crisis. And if there’s anything that Wall Street hates, it’s an unexpected crisis with unknown consequences.”

According to the article, an across-the-board rise in defaults and foreclosures means two things:

1. Consumers stop spending
2. Home prices could dip

And, according Merrill Lynch economist David Rosenberg, tightening lending standards might not be the silver-bullet solution.

Here’s a snip:

“Our biggest concern is that any tightening of lending standards in the mortgage market — even if confined to lower-quality borrowers — is going to constrain overall housing demand and make it more difficult for home sales and prices to stage a recovery.

We’ll continue to provide updates on this evolving issue … stay tuned.