Residential mortgage delinquencies and defaults are becoming more common among borrowers in the category just above subprime, American International Group said Thursday.
AIG, the world's largest insurer and one of the biggest mortgage lenders, said total delinquencies in its $25.9 billion mortgage insurance portfolio were 2.5 percent.
It said 10.8 percent of subprime mortgages were 60 days overdue, compared with 4.6 percent in the category with credit scores just above subprime, indicating that the threat to the mortgage market may be spreading.
The Dow industrials plummeted more than 200 points at the start of Thursday's session following more credit worries from BNP Paribas and AIG.
Treasury prices rose in a flight to quality, sending the yield on the benchmark 10-year note to 4.78 percent from 4.88 percent late Wednesday. Bond prices and yields move in opposite directions.