MercoPress. South Atlantic News Agency

US mortgage bubble sends jitters to world markets

Late mortgage payments and home repossessions in the United States reached their highest level according to the Mortgage Bankers Association (MBA) data confirming investor fears that the sector is struggling and may weaken more.

As a consequence the Dow Jones and Nasdaq lost about 2% in Tuesday trading, with a similar reaction in Latin America's main stock exchanges and Asian share markets on Wednesday tracked heavy losses on Wall Street on fears about an intensifying crisis in U.S. mortgage lending. Overall the 1.97% or 242.66 points slump to 12,075.96 on the Dow Jones offset gains from the past three sessions. Meanwhile the Nasdaq fell 51.72 points, 2.15% to 2,350.57. In Latinamerica Mexico's BVM lost 2.46%, Sao Paulo's Bovespa 3.39%, Argentina's Merval 3.7% and Chile's IPSA, 1.88%. Late or missed payments on mortgages soared to 4.95% the MBA figures showed, rising to 13.3% in the sub-prime market. And lenders launched repossession actions against more than one in every 200 mortgage borrowers in the period. The figures were the highest in the 37-year history MBA's national delinquency survey. "Unfortunately, it appears delinquency rates will likely worsen before they improve," said Gina Martin analyst at Wachovia Securities. "The delinquency data released today only reflects the state of mortgage markets as of the end of 2006. No wonder the equity market is unhappy." Sub-prime lenders provide money to clients with a poor credit history, and the current problems have been sparked by a rise in defaults and bad loans. These, in turn, have been triggered in part by a relentless rise in interest rates from rock-bottom levels in the past four years, and falling house prices and rates of homebuilding in many parts of the US. The subprime industry admits it faces a "liquidity crisis". Another lender, New Century revealed that US markets regulator the Securities & Exchange Commission was investigating it. New Century has stopped making loans and its shares have been suspended, with some analysts now predicting bankruptcy Share markets in Australia and Korea fell more than 1.5% Wednesday while the 10-year Japanese government bond yield slid to a 2-1/2-month low after U.S. Treasuries rallied on concerns the troubled subprime mortgage sector could hurt the wider economy. Global markets had been showing signs of a tentative recovery from a slide that began at the end of February, when steep losses in Chinese stocks combined with worries about slowing U.S. growth to spark a worldwide flight from riskier assets. European shares also dropped on Tuesday and ended at the day's low as banks were rattled by concerns about their exposure to a troubled U.S. housing market and worries that growth in the U.S. economy will stall. The pan-European FTSEurofirst 300 index closed unofficially down 1 percent at 1,466.97, marking the day's low after a morning retreat by U.S. shares gathered pace. The DJ Stoxx European banking sector index fell 1.5%, with Barclays down 3% and Santander, Royal Bank of Scotland and Credit Suisse each down about 2% as banks on both sides of the Atlantic were unsettled by deepening troubles among U.S. subprime mortgage lenders. Across European exchanges, London's FTSE 100 index and Paris's CAC 40 both fell 1.2% and Frankfurt's 30 shares DAX shed 1.4%. Weaker-than-expected U.S. retail sales figures added to the trouble in the mortgage market to pull U.S. shares lower in early action.