NEWS / Foreign Exchange

Mortgage panic in the USA

The US housing market is still capable of sending the financial markets into a spin. Over the last couple of weeks, fears of a collapse in subprime lending have dominated the markets. Subprime lending accounts for 14% of the overall mortgage credit market and is used by consumers who do not qualify for normal mortgage loans.

The problem with subprimes is that lenders are having to cope with an increase in late payers and foreclo-sures. Lending rates have risen sharply, and there is a risk of a marked reduction in demand from these con-sumers. Several lenders have also gone to the wall, which could make consumers even more cautious.

However, it is normal for rates on these loans to fluc-tuate widely, and for the number of late payers to rise as monetary policy is tightened. It is also worth noting that these problems are unlikely to have any major im-pact on consumers with normal mortgage loans, who may even benefit from lower long-term interest rates. We do not therefore expect the crisis in the subprime sector to have any major negative macroeconomic consequences.