A contraction in subprime lending is well under way, and it is "not unusual for financial markets to overreact following losses," according to a study commissioned by the American Financial Services Association.However, there is a "real danger" that aggressive legislation or regulation could "exacerbate the effect this contraction has on the availability of credit, leaving huge numbers of Americans out in the cold," said George Wallace, executive director of the Center for Statistical Research, which conducted the study. The CSR study shows that a 10% contraction in subprime lending could cut off mortgage credit to 580,000 American families, and a 20% contraction could affect 1.1 million borrowers. The Alexandria, Va., research firm points out that subprime foreclosure rates are rising but are not unusually high by historical standards. "The increases in foreclosure rates are not an indication that the mortgage marketplace is structurally flawed or requires regulatory intervention," the CSR study says.

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