Late mortgage payments and home repossessions in the US have hit their highest level since records began, official figures showed.
There are major worries about the US mortgage market
The Mortgage Bankers Association (MBA) data for the last three months of 2006 confirm investor fears that the sector is struggling and may weaken more.
The figures gave urgency to the sell-off of shares in sub-prime lenders who are particularly vulnerable.
The Dow Jones and Nasdaq both lost about 2% in Tuesday trading.
Sub-prime lender Accredited Home Lenders Holding saw 65% wiped off its value on Tuesday, having lost 28% a day earlier, after it revealed that it may have to raise extra funds, seek debt waivers, cut jobs and put back its earnings announcement.
As well as the sub-prime lenders, other fallers included major Wall Street lenders with exposure to the mortgage industry - including Bear Stearns and JPMorgan Chase, which lost 4%.
Overall the 1.97%, or 242.66 points slump to 12,075.96 on the Dow Jones offset gains from the past three sessions.
Meanwhile the Nasdaq fell 51.72 points, 2.15% to 2,350.57.
Late or missed payments on mortgages rose to 4.95% the MBA figures showed, rising to 13.3% in the sub-prime market.
And lenders launched repossession actions against more than one in every 200 mortgage borrowers in the period.
The figures were the highest in the 37-year history MBA's national delinquency survey.
"Unfortunately, it appears delinquency rates will likely worsen before they improve," said Gina Martin analyst at Wachovia Securities.
"The delinquency data released today only reflects the state of mortgage markets as of the end of 2006. No wonder the equity market is unhappy."
Sub-prime lenders provide money to clients with a poor credit history, and the current problems have been sparked by a rise in defaults and bad loans.
These, in turn, have been triggered in part by a relentless rise in interest rates from rock-bottom levels in the past four years, and falling house prices and rates of homebuilding in many parts of the US.
Another lender, New Century revealed that US markets regulator the Securities & Exchange Commission was investigating it.
New Century has stopped making loans and its shares have been suspended, with some analysts now predicting bankruptcy
The company has warned that it may have to buy back more than $8bn (£4.2bn) in loans, and its creditors are claiming that the company is in default of loan agreements and have halted financing.
And Countrywide Financial, the biggest US mortgage company, has warned that the current problems would hurt profit in the short-term and added that it would cut 108 jobs.
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