Overall losses from the U.S. mortgage market crisis could be up to $300 billion but financial firms and policymakers need to buy time to ensure an orderly work-out, the Organisation for Economic Co-operation and Development said on Wednesday.
But the Paris-based forum said the worst of the U.S. housing market downturn had not yet been seen and would continue to depress mortgage-related debt products and derivatives held by banks, hedge funds and insurance companies.
“We still have not hit the worst point in resets, delinquencies and ultimate losses on mortgages,” the OECD said, adding some $890 billion of sub-prime, or poor credit quality, mortgages will have rates reset in 2008 — with the peak expected about March.
The OECD said a hypothetical 14 percent loss on subprime mortgages being reset in 2008 could result in $125 billion in losses. If so-called Alt-A mortgages are included, cumulative losses in the $200-$300 billion range “seem feasible”, it said.