U.S. Recession Predicted By Most Experts Increases The Risk Of Mortgage Investments
With a recession in the U.S. economy looming on the horizon, investors, in general, and investors in mortgage-related securities, in particular, need to batten down the hatches. It could get a lot worse before it gets better. While many expected problems in the mortgage debt financial markets as a result of an array of subprime abuses, the tremendous downturn in the housing market coupled with a recession could result in a “perfect storm” that would lead to substantial losses in addition to those already expected. Such losses, in turn, could put significant additional downward pressure on the financial markets.
The International Monetary Fund (IMF) forecasted that the U.S. is sliding into a recession because of subprime problems and the resulting credit crunch. "The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression," the IMF said.
Meanwhile, Federal Reserve officials expect a "prolonged and severe economic downturn." Chairman Ben Bernanke acknowledged last week that a recession is likely. His statements indicate that he is beginning to share the views of many economists who believe the country is already experiencing a recession.
Several Fed officials said, "declining asset values, credit losses, and strained financial market conditions could be quite persistent" with the potential to "delay and dampen economic recovery."
The loss of 80,000 jobs in March coupled with the financial fallout from multi-billion-dollar losses arising from home foreclosures, failed investments, and escalating costs of consumer goods, makes it difficult for the American public not to expect a recession.
