UPDATE 2-Wells Fargo: Over 200 markets face housing trouble

(Adds Wells Fargo comment, paragraph 8)

By Jonathan Stempel

NEW YORK, Feb 27 (Reuters) - Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz), the second-largest U.S. provider of home loans, has identified more than 200 troubled housing markets nationwide, showing how the mortgage crisis has spread beyond a few select U.S. regions.

In a February 25 document sent to mortgage brokers, San Francisco-based Wells Fargo said it had identified "soft," "distressed" or "severely distressed" housing markets in 24 states and Washington, D.C. Most of the markets are counties, while a handful are cities.

Wells Fargo is tightening its lending standards in the affected markets on February 29, often by limiting the size of loans as a percentage of home values, regardless of borrowers' ability to pay. In some markets, it will not allow purchasers to borrow more than 75 percent of the value of their homes.

The fifth-largest U.S. bank is a more conservative lender than many rivals, but took a $1.4 billion, fourth-quarter charge to add reserves, largely for home equity loans.

Its assessment reflects how the housing slump is no longer concentrated among just high-risk borrowers with subprime or below-prime "Alt-A" home loans, and in markets such as Arizona, California, Florida and the upper Midwest.

"You're seeing a natural reaction to fundamental trends," said Christopher Thornberg, principal and founding partner of Beacon Economics in Los Angeles. "There are three main drivers to foreclosures: people borrowing more than they can afford, rising unemployment and falling home prices. The latter issues affect a wide range of loans, not just subprime and Alt-A."

Wells Fargo confirmed the document's contents.