Expect Subprime Florida Home Loan Problems to Worsen

The bad credit Florida mortgage problem will worsen over the next year, as the rate of loan delinquencies could rise further, an influential fund manager specializing in mortgage backed securities said on Wednesday.

Jeffrey Gundlach, chief investment officer at the Trust Company of the West (TCW) who oversees about $60 billion in assets, also said the worsening subprime woes would slow the economy down and lead to a cut in interest rates.

“The subprime area is a total unmitigaged disaster and it’s going to get worse,” Gundlach told Morningstar’s annual investment conference in Chicago.

Gundlach, picked by research firm Morningstar as the best fixed income manager for 2006, said delinquencies in loans made to risky borrowers could rise as housing prices in the United States are declining, supply is growing and credit to subprime borrowers has been tightened, making Florida mortgage refinancing difficult.

“Until you can see past the valley to the peak of delinquencies and foreclosures, there’s going to be downward pressure (on the economy),” he said.

Gundlach said with the Florida housing market, one of the biggest drivers of inflation, being soft, interest rates would be cut.

“The next move in interest rates from the Fed will be down,” he said.

The U.S. Federal Reserve’s Federal Open Market Committee meets on June 27-28 and is widely expected to hold the federal funds rate steady at 5.25 percent.