Mortgage Losses to Top $1.4 Trillion: IMF

Signaling a worsening financial and mortgage-led crisis, economists with the International Monetary Fund said Tuesday they now expect mortgage-related losses substantially above the $945 billion estimated in April. In the IMF’s latest Global Financial Stability Report, officials said they now foresee losses as large as $1.4 trillion. “While roughly $560 billion of the losses had already been realized through end-September 2008, bank share prices have continued to plummet and their revenue prospects have stalled,” IMF officials said in a press statement. “Raising new capital has become much harder, making it much more difficult for banks to repair their aching balance sheets.” IMF’s forecast calls for zero credit growth in the United States through the end of next year, and signaled concerns with the Treasury’s $700+ billion bailout of U.S. financial markets. “A major issue for the plan is the difficulty for anyone, including a cadre of government-chosen experts, to determine future cash flows from these assets under such uncertain conditions,” the report suggested. In other words: the plan will likely do little to resolve lingering uncertainty among a wide swath of investors. It’s a sentiment we’ve been hearing plenty of from HW’s key sources over the past few days, and it’s clearly been reflected in movement in the equity markets in the U.S. The Dow Jones Industrial Average was off more than 300 points to 9649.41 on Tuesday afternoon, despite an earlier announcement by government officials that they would begin support for the ailing commercial paper market. Despite concerns, Jaime Caruana, director of the IMF’s Monetary and Capital Markets department, suggested that the de-leveraging process now underway was a necessary part of restabilizing global economies. “We believe that a more resilient financial system will ultimately emerge from the restructuring and deleveraging process that is under way,” he said. Read the full IMF report >>