For most of us, the term "subprime" conjures up thoughts of a lower grade of beef. But now, with the weakening status of the world of subprime mortgages -- those mortgages made to the least credit-worthy of borrowers -- the word has found its way onto the tips of all our tongues.

The real question today is whether difficulties among a growing number of those with subprime mortgages and the lenders that made them will "bleed" over to exacerbate housing sector maladies in particular and even the capital markets in general. For now, things clearly are far from rosy in real estate.

Last week, the Mortgage Bankers Association reported that in the final quarter of last year, 4.95% of all mortgages in the U.S. were at least 30 days past due, up from 4.67% in the third quarter. More astounding was the 13.33% delinquency rate for those with subprime loans, up from 12.56% in the previous quarter -- but still lower than the delinquency rate of 14.44% for subprime borrowers with adjustable-rate mortgages.

Largely as a result, the New York Stock Exchange has delisted New Century, the second-largest factor in the subprime market. Countrywide (NYSE:CFC) CEO Angelo Mozilo has become a fixture on financial network CNBC, providing information and opinions on the extent of the rot that may be affecting mortgage lending. Further, General Motors' (NYSE:GM) partly owned General Motors Acceptance financing arm was forced to note struggles in its Residential Capital LLC mortgage arm last week.

Though many financial firms, including Goldman Sachs (NYSE:GS), admit that the subprime market is showing "significant weakness," most nevertheless contend that the rest of the market is strong. That contention may not be completely accurate, however. For instance, I'd note that the middle range of mortgages -- that world between subprime and prime, which is referred to as Alt-A -- grew from about $85 billion in originations in 2003 to about $400 billion last year. In little more than the past year, the rate of defaults among Alt-A mortgages reportedly has doubled.

Couple all this with the domino nature of housing sales, in which you're only willing to buy my house after your house is sold to Party C, and Party C can buy only after receiving a valid offer from Party D, etc., and its easy to see why removing just a few would-be buyers from the process can exacerbate market sluggishness. One key result has been the virtually nationwide ramp in the inventory of unsold homes during the past year.

So, Fools, it seems to me that the subprime malaise has begun to spread. In fact, it would be difficult to convince me that a sort of reverse wealth effect related to the citizenry's perceptions of lower housing values hasn't helped to dampen retail sales, which in February were essentially flat. Another result will almost certainly be a more protracted softness for housing than we might have anticipated as recently as the final quarter of last year.

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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your comments or questions.