Defaults On Sub-Prime Loans 'Stabilising'

Sep 25, 2007

THE default rate for strife-hit United States sub-prime mortgages is stabilising, a US housing official said yesterday at a housing conference in Singapore.

Defaults on these loans, issued to homebuyers with low income or a poor credit history, triggered global shock waves recently and sparked intense scrutiny of Singapore banks' exposure to them.

Assistant secretary of policy development and research at the US Housing and Urban Development Department, Dr Darlene Williams, indicated that she did not expect last week's half-point US interest rate cut to affect the number of defaults significantly.

Speaking to reporters at the inaugural Asia-Pacific Housing Forum, she said: 'The hope is that the Fed rate cut would send the signal that the government is concerned and willing to continue to analyse the situation so that the market can relax.'

'We believe we still have a market that is correcting, but we don't expect any drastic changes to the rate of defaults.'

Dr Williams said sub-prime loans form only a small percentage of the US mortgage market and only 20 per cent of such mortgages are at risk of default.

'Our economic fundamentals are strong. The loan defaults are half of what they were in the 1980s and interest rates are low compared with the double-digit rates of 20 years ago,' she said.

Sub-prime loans play a role in helping people own homes, she said. 'Sub-prime mortgages democratise credit, so we don't want to throw that option away.'

The three-day housing forum is organised by Habitat for Humanity and the Singapore Institute of Planners.

At the same event, Singapore National Development Minister Mah Bow Tan shared the Republic's successful experience of housing its citizens at affordable prices.