Wednesday, July 18, 2007
What’s that smell?
The US sub-prime mortgage debacle has only just begun, experts said yesterday, with defaults on risky home loans likely to soar as temporary "teaser" rates come to an end this year and next. Michael Farrell, chairman of Fidac, a US-based mortgage-backed securities investor, said home loans worth up to $1,000bn (£490bn) could revert to much higher floating rates in the next two years. More than half could be accounted for by loans to risky, sub-prime borrowers, many of whom will default on interest payments when higher rates kick in. Mr Farrell said: "What's remarkable is that this is happening when we have had good job growth. You would expect this level of delinquencies in a full-blown recession."