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IMF sees rising mortgage risk in US, but says risks are contained
(Updating with IMF quotes) WASHINGTON (Thomson Financial) - Defaults and foreclosures in the US sub-prime mortgage market have led to increased uncertainty in the US, but these risks appear to be contained and should not pose a risk to the overall economy, the International Monetary Fund (IMF) said today in its updated World Economic Outlook report. 'In sum, risks have increased and credit markets could remain volatile in the period ahead with a further repricing of some credit products,' the IMF said in its financial market update. 'However, so far, our assessment is that this risk is likely to remain largely contained.' More generally, IMF's director of monetary and capital market development, Jaime Caruana, told reporters today the IMF believes financial markets are 'almost around average volatility.' The report said that, within the US, delinquencies, defaults and foreclosures have continued to rise, 'especially in the 2006 vintages of sub-prime lending'. It said more than 10 pct of the sub-prime mortgages taken out in 2006 are delinquent by 60 days, up from a high of about 8 pct of sub-prime mortgages taken out in 2005, and about 5 pct for 2004 mortgages, data provided by JPMorgan Chase showed. Caruana said today that the sub-prime adjustment process has not yet concluded. The use of adjustable-rate mortgages has also increased sharply, prompting the IMF to predict that the 'materialization of the risks' would continue as more rates on these mortgages are reset at higher levels. The report also said lending discipline has weakened in the corporate credit market, and that interest rates on lower rated corporate debt have risen. The IMF said credit risk 'has begun to translate into higher market risk, notably on products based on US sub-prime mortgages and leverage loans.' But it also noted that market turbulence has been 'mainly confined' to credit markets. 'Importantly, markets are discriminating on the strength of underlying fundamentals, and recent corrections have been concentrated in sub-prime, leveraged loan and lower quality corporate bonds,' the report said. 'The ongoing adjustments in the structured credit and leveraged finance markets should help bolster credit discipline while the capacity of market participants to discriminate according to fundamentals will be important going forward.' Elsewhere, the report said capital flows to Eastern Europe have increased sharply, matching flows to emerging Asian nations. [size=1][color=silver][email][email protected][/email] pik/wash/am/wash/am COPYRIGHT Copyright AFX News Limited 2007. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. [/color][/size]