Last week the Dow Jones industrial average fell 4.2%, the steepest drop since March 2003. Financial shares took a beating on growing evidence that problems in the sub-prime mortgage market are spreading, making financing the corporate buy-outs that drove the market’s rally more difficult.

Many financial market participants are of the view that there is a definite deterioration in credit conditions, which means less liquidity for private equity, stock buy-backs, and business expansion. Fed officials, however, have downplayed this claim.

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SAN FRANCISCO (MarketWatch) — Units of Cerberus Capital Management LP and National City Corp. stopped taking home loan applications on Monday, becoming the latest to be hit by turmoil in the mortgage market.
Aegis Mortgage Corp., a mortgage lender that’s part-owned by private-equity firm Cerberus, suspended all loan originations on Monday. Aegis also is unable to fund home loans that are already in its pipeline, spokeswoman Pat Wente said.

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