WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said on Thursday that losses in the U.S. subprime mortgage market may have reached $100 billion so far and could climb, but would not top $500 billion.
“Within the specific category of subprime, adjustable-rate mortgages, the total outstandings are about a trillion dollars. So, the limits to possible losses must be less than half of that,” Bernanke told the U.S. House of Representatives Budget Committee.
“I see, so far, about $100 billion but it certainly could be several multiples of that as we go forward and the delinquency rates and foreclosure rates rise,” he said, noting 20 percent of subprime mortgages are currently delinquent.
“In the subprime mortgage market there are about 5 million mortgages with a total principal value of a trillion dollars. Currently, 20 percent of those mortgage are delinquent. If you assume that all those mortgage go into foreclosure, which is an exaggeration ... that would give you so far, $100 billion dollars,” Bernanke said.
Subprime loans are extended to borrowers with risky credit.
Reporting by Patrick Rucker; Editing by James Dalgleish