IMF: U.S. Mortages Won't Derail Markets

Discussion in 'Wall St. News' started by universaltrader, Apr 10, 2007.

  1. Tuesday April 10, 9:04 am ET
    By Jeannine Aversa, AP Economics Writer
    IMF Says Risky U.S. Mortgages Not Likely to Derail Stability in Global Financial Markets

    WASHINGTON (AP) -- While the economic fallout related to dicey U.S. mortgages has raised some risks, it is not likely to derail stability in global financial markets, the International Monetary Fund said Tuesday.

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    The assessment was contained in a wide-ranging report that explored the current worldwide financial landscape.

    "The subprime segment has deteriorated a bit more rapidly than had been expected at this point in a housing downturn," the IMF report said. "The fallout has so far been limited to a small number of lenders, but could yet spread to the structured credit markets."

    So-called subprime lenders -- those that make home loans to people with blemished credit histories or low incomes -- have been battered. Weak home prices and rising interest rates have made it increasingly difficult for U.S. borrowers to keep up with their payments. Delinquencies and foreclosures in the U.S. subprime mortgage market are soaring.

    U.S. residential mortgage-related securities total around $5.8 trillion, with foreign investors holding a sizable chunk -- around $850 billion, the IMF report said. Subprime mortgages account for around 14 percent of the $5.8 trillion total.

    In the United States, credit deterioration "has been primarily confined to subprime mortgages, though it has begun to spread to Alt-A mortgages," which are considered higher quality than subprime mortgages but still less than prime credit quality, the IMF said.

    Although individual lenders dealing in such mortgages probably will feel some pain as defaults rise, the fallout in the risky mortgage market seen so far is "not likely to pose a serious systemic threat" in the United States or abroad, the IMF said.

    "Major dislocation still appears to be a low-probability event," the IMF said. "But the risks would be heightened if many subprime credit events were to take place simultaneously."

    Last month, Federal Reserve Chairman Ben Bernanke told Congress that growing troubles in the market for subprime mortgages do not appear to be spreading to the overall economy. "At this juncture ... the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained," he said.

    The IMF's report is being released as global finance officials get ready for Friday's meeting of the world's most industrialized countries, and the weekend meetings of the 185-nation fund and World Bank.

    Finance officials from industrialized countries are expected to discuss ways to mitigate risk to the worldwide financial system posed by the rapid growth of hedge funds.

    The IMF report said more openness from these secretive, largely unregulated and high-risk investment pools would be a good idea. "It is recommended that investors and counterparties continue to seek more transparency."