Subprime crisis may worsen over next year

WASHINGTON, Nov. 5 (UPI) -- The U.S. subprime mortgage crisis probably will worsen over the next 12 months before improving, a Federal Reserve governor said Monday.

"(Two) conditions suggest that conditions for subprime borrowers have the potential to get worse before they get better," Federal Reserve Governor Randall S. Kroszner said in a speech during the Consumer Bankers Association Fair Lending Conference in Washington.

The conditions are indications of a weakening in housing activity and the second is that "the bulk of resets is yet to come," he said.

For each quarter from now until the end of next year, on average, monthly payments for more than 400,000 subprime mortgages are scheduled to undergo their first interest adjustment, up from the roughly 200,000 per quarter during the first half of 2007.

"Delinquencies and foreclosures are therefore likely to continue to rise for a number of quarters," Kroszner said.

Kroszner called on his audience to work "as a financial services community to look for ways to help borrowers address their mortgage challenges," such as collaborative projects within the housing and loan industries.

As ways to address the issue, Kroszner called for modernizing the Federal Housing Administration and a "vigorous" review of mortgage-related rules.