Bad Credit Florida Mortgage Problems Won’t Hamper Economy, Former Fed Chief Says

Troubles plaguing bad credit Florida home loan lenders are not likely to spill over into the broader economy unless area home prices see another, more drastic decline.

The source of this opinion is fairly credible. That’s what former Federal Reserve chairman Alan Greenspan said Thursday, according to the Bradenton Herald.

“I think it’s important to recognize that what we’re dealing with… is more an issue of home prices than mortgage credit,” Greenspan said at a Futures Industry Association conference in Boca Raton.

Greenspan said that as home prices dipped, “subprime borrowers have not been able to build up enough equity.”

Mounting concerns about risky Florida mortgages by lenders who provide loans to people with poor credit are making investors very cautious.

And it’s hardly a problem limited to the Sunshine State.

The widespread bad credit mortgage fears among investors fueled a drop on Wall Street earlier this week and a worldwide stock meltdown on February 27, where the Dow Jones industrials suffered a 416-point plunge.

Worried about defaults on the high-risk mortgages, regulators earlier this month called on lenders to use caution in making subprime home loan transactions and more strictly evaluate borrowers’ ability to repay them.

However, Greenspan said that if home prices “would go up 10 percent, the subprime lending problem would disappear.”

Whether that happens anytime soon in this Florida housing market is a different matter entirely. But the message is clear.

If home prices drop, conversely, within a year, the former Fed guru said that could cause the problems to “spill over into other areas.”

“At the moment, we’re not seeing this. The spillover is just not there,” he said.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson also have said they don’t expect the problems of the home mortgage market to spread through the financial system and hurt the economy.

On another matter, Greenspan repeated a warning about the massive strain on the U.S. budget and the future economy from the retirement of 78 million baby boomers, who will draw their benefits from Social Security and Medicare.

Greenspan largely shied from talking about the economy’s immediate future after comments he made two weeks ago that a broad recession was possible at the end of this year sparked the Dow Jones plunge.

Asked about short-term interest rates, which heavily influence Florida mortgage rates for borrowers, Greenspan replied:

“Since I left the Fed, the one question I haven’t been answering is that one. I can only get myself into deep grief.”