The nation's banks are just beginning to feel the pain of defaults on risky mortgages they made at low introductory rates when housing prices were soaring, U.S. Federal Reserve Governor Susan Bies said.
Bies, who has been the Fed's top banking policy official in her tenure at the U.S. central bank, said today banks are likely to see more missed payments and foreclosures as consumers with weak credit histories begin to face higher monthly mortgage payments.
``What's happening is the front end of this wave of teaser- rate loans that are coming into full pricing,'' Bies said at a risk-management forum in Charlotte, North Carolina. ``So what we're seeing in this narrow segment is the beginning of the wave. This is not the end, this is the beginning.''
Depending on which news source you read, there are between $700 billion and $1 trillion of subprime loans that adjust this year. That means we have 9 more months of possible problems.
In addition, when a Fed official uses the phrase "tip of the iceberg" you know you've got some possible problems coming down the pike.