Subprime woes spread

By Lynn Adler

NEW YORK (Reuters) - A senior U.S. Federal Reserve staff member warned on Tuesday that subprime mortgage market troubles could last as long as two years, while a leading home builder posting a huge profit plunge blamed subprime lending problems for worsening a soft housing sector.

Further underscoring the troubles in the U.S. housing sector, economic data showed home prices fell at the start of this year while consumer confidence waned in March, at least partly due to worries about real estate.

Sandra Braunstein, director of the Fed's division of consumer and community affairs, said problems with subprime mortgages, which are held by less credit-worthy borrowers, could persist for some time.

"Although there are some indications that the market is correcting itself, we remain concerned that over the next one to two years, existing subprime borrowers ... may face more difficulty," Braunstein told a House of Representatives subcommittee in a hearing.

Borrowers with already weakened credit are likely to be slammed further when their adjustable-rate mortgages reset to higher payments.

Delinquency and foreclosure rates will mount, Braunstein said in remarks prepared for a financial institutions subcommittee hearing. The Fed is reviewing its regulation on mortgage cost disclosures, she said.

The head of the Federal Deposit Insurance Corp., a major bank regulator, and lawmakers on Tuesday also called for a national standard to crack down on predatory lending, which is seen as a primary cause of the subprime mortgage crisis.

Democrats in Congress are holding several hearings on predatory lending, the subprime mortgage crisis and its impact on the secondary mortgage market before unveiling legislation to deal with the matter. The House subcommittee hearing is the first of these.