Greenspan: Subprime Meltdown Will Spread if Housing Prices Drop Further

| About: SPDR S&P (SPY)

Former Fed chair Alan Greenspan said at a conference yesterday that if housing prices continue to fall, the collapse of the subprime mortgage market could spill over into other segments of the economy. Greenspan has said several times over the past few weeks that he believes a recession is possible, giving it a one-third probability by the end of 2007. He called it "quite remarkable" that the country has not yet seen an impact on personal consumption from the housing slowdown, given that a "fairly significant" proportion of consumer spending from 2001 through 2005 was attributable to the boom in housing prices. Yesterday, the Mortgage Bankers Association reported that in Q4, U.S. subprime borrowers were delinquent on their mortgage payments at the highest rate in four years and foreclosures on all varieties of home loans hit an all-time high. Many subprime mortgage originators, squeezed by demands that they buy back bad loans, are now seeking buyers or bankruptcy protection. Current Fed chair Ben Bernanke and Treasury Secretary Henry Paulson have said recently that they do not expect the subprime mortgage meltdown to seep into the rest of the economy.

Sources: Mercury News, MarketWatch, Bloomberg
Commentary: Kass: Four to Blame for the Subprime Mess [] • Mortgage Crisis: Fed Was Asleep At the WheelWill the Economy be Affected by a Housing Recession?U.S. Foreclosure Rate Hits Record High
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.