Friday, March 16, 2007

Greenspan warns subprime woes could spread - Yahoo! News

Greenspan warns subprime woes could spread - Yahoo! News

BOCA RATON, Florida (Reuters) - Former
Federal Reserve Chairman
Alan Greenspan said on Thursday there was a risk that rising defaults in subprime mortgage markets could spill over into other economic sectors. ADVERTISEMENT

In a wide-ranging question-and-answer session at the Futures Industry Association meeting, Greenspan conceded it was "hard to find any such evidence" about spillover from stressed mortgages yet, but: "You can't take 10 percent out of mortgage originations without some impact."

"I'd expect it to -- I'm waiting -- but the spillovers are just not there," he said. Some problems have turned up in collateralized debt markets, Greenspan added.

Greenspan said the housing downturn appeared to stem more from the recent stagnation in housing prices after years of appreciation than from a decline in mortgage quality but said he was not downplaying problems in so-called subprime loans.

Subprime woes were "not a small issue," said the 81-year-old policy kingpin emeritus.

The current problems seemed to result primarily from buyers who had come into lofty housing markets late in the game, Greenspan said, only after huge price run-ups that made homes less affordable.

Default rates in the subprime segment of the U.S. mortgage market have jumped in recent months as the housing industry slowed and prices fell.

At least 20 lenders in the subprime mortgage sector, which serves borrowers with poor credit histories at high interest rates, have gone out of business as a result.

The crisis has triggered broader concerns that the fallout may spread to mainstream lenders and damage the economy.

Greenspan, whose words still move markets even though he vacated the Fed chairmanship more than a year ago, said much of the strength in consumer spending over the past five years could be traced to capital gains, both realized and unrealized, on surging housing prices.

If home prices keep falling, there could be more of an impact on the broader economy's momentum, he indicated. Consumer spending fuels two-thirds of national economic activity.

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