Some Lenders See 'Contagion of Fear' Could Spread Beyond Subprime

The Credit Manager's Index, a monthly survey of business credit managers, finds that while most say conditions remain strong, they fear that problems currently plaguing the subprime sector of the mortgage industry could spread throughout the credit industry.

"Some trade credit managers seem to be experiencing the same difficulties seen in virtually all credit markets," said Dan North, chief economist with credit insurer Euler Hermes, in a news release issued by the National Association of Credit Managers.

Mr. North said the rapid rise in delinquencies and defaults affecting the subprime mortgage world have sent a "contagion of fear" into other mortgage-backed securities, corporate bonds, leveraged buyout financings and even the safest corporate debt markets.

NACM is afraid that the liquidity crunch affecting mortgage lenders will spread to other businesses that rely upon lines of credit.

"If the highest-quality credits are having difficulty securing financing, then smaller businesses will be even more strapped to find financing of any kind, including financing of trade credit as suggested by the respondents to this survey," he said.

He said that credit conditions "may force the Fed's hand" at its September meeting, suggesting that the Fed may lower short-term interest rates to ease the current liquidity crisis. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com/

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