Hot sectors in a tepid recovery
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Record Libor to boost mortgage defaults 10 pct-Citi
NEW YORK, Oct 7 (Reuters) - Defaults on U.S. adjustable-rate mortgages will likely jump by 10 percent based on the rise in short-term lending benchmarks to record levels, according to Citigroup Global Markets.
Increases in London interbank offered rates (Libor) as of Sept. 30 following turmoil in global financial markets will increase monthly payments on loans with rates due to adjust as much as 13 percent over what they would be based on Libor two weeks earlier, Citigroup analysts, led by Rahul Parulekar, wrote in a research note.
Higher defaults will increase losses on loans by 1.8 percent, they said in the note dated Oct. 6.
"A sustained dislocation of Libor will affect more borrowers further down the road, worsening prospects for housing, (mortgage bond) valuation, and therefore, interbank lending once again," they said. (Reporting by Al Yoon; Editing by James Dalgleish)
