Subprime Woes Not Over Yet, Kroszner Warns

Problems in the subprime mortgage market aren't likely to get better anytime soon, Federal Reserve Governor Randall Kroszner said Monday, indicating that things could even "get worse before they get better." Speaking to the Consumer Bankers Association, Kroszner said indications were that the housing sector would continue to struggle, particularly in the subprime mortgage market, that house prices would be "sluggish for some time," and that loan delinquencies and home foreclosures were likely to rise for a number of quarters. Separately, Federal Reserve Governor Frederic Mishkin made the first comments following last week's interest rate cut by the Fed, saying "The FOMC perhaps could have waited for more clarity and left policy unchanged last week, but I believe that the potential costs of inaction outweighed the benefits, especially because, should the easing appear to have been unnecessary, it could be removed." The cuts, he said, were aimed at forestalling damage from the credit crisis to the broader economy. Since credit access began to decline in April, the central bank has cut the benchmark lending rate by 0.75 percentage point to 4.5% and the charge for direct loans to banks by 1.25 percentage points. Mishkin noted that stresses remain and markets haven't fully recovered even though the summer's volatility has eased.

Sources: Thomson Financial, Bloomberg, Reuters
Commentary: Credit Problems Delayed are Not Credit Problems Solved • No Bottom Yet in Housing, Paulson Says

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