Bears Take Another Day on Wall Street

Updated from 2:43 p.m. EST

Hit hard by economic worries and concern over the stumbling automotive sector, stocks on Wall Street closed with heavy losses Tuesday.

The Dow Jones Industrial Average, lost 176.58 points, or 2%, at 8693.96. The S&P 500 fell 20.26 points, or 2.2%, to 898.95. The Nasdaq gave back 35.84 points, or 2.2%, to 1580.90.

An afternoon rally accompanied an announcement by the Federal Housing Finance Agency that it would work to refinance mortgages tied to government-sponsored entities Fannie Mae (FNM) and Freddie Mac (FRE), but buying enthusiasm faded before the major averages could reach positive territory.

At a press conference in Washington, James Lockhart -- director of the FHFA, which controls Fannie Mae and Freddie Mac -- said the two companies will work to refinance mortgages in an effort to keep borrowers in their homes. The new plan will effect on Dec. 15. Lockhart also said that the borrower's obligation to pay mortgages would remain in place.

The Federal Housing Authority's Brian Montgomery said the housing crisis has no single solution, but hundreds of thousands of borrowers may be eligible to refinance under the FHFA's program.

Several large banks also announced refinancing plans. Citigroup (C) said it would alter terms for mortgages to avoid foreclosure proceedings on as much as $20 billion in at-risk home loans. Shares fell 3.7% to $10.80.

Bank of America (BAC) and JPMorgan Chase (JPM) had previously announced similar initiatives.

The decision by big banks to refinance mortgages is about a year overdue, said Michael Church, portfolio manager at Church Capital. Although it's much cheaper for banks when they avoid foreclosing on homes, securitization of mortgages has made it difficult to find out who the end-borrowers and the end-lenders are. "With things on a massive scale like this, I'm not surprised it has taken a year," he said.

Lawrence Fink, head of BlackRock (BLK) said in an investment conference that the financial markets were showing signs of capitulation, according to media reports. BlackRock management also reportedly said a $30 billion portfolio of mortgage-related assets that had belonged to Bear Stearns may be worth more than its market value suggests.