US mortgage crisis goes into meltdown (Ambrose Evans-Pritchard)

  Peter Schiff, head of Euro Pacific Capital, said the sector was in an unstoppable meltdown. "It's a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults," he said.

  By Ambrose Evans-Pritchard -- Telegraph/UK

  Feb. 24, 2007 -- Panic has begun to sweep the sub-prime mortgage sector in the United States after the bankruptcy of 22 lenders over the past two months, setting off mass liquidation of housing loans packaged as securities.

  The rapid deterioration could not come at a worse time for British bank HSBC, which has set aside $10.5 billion (£5.4 billion) to cover bad loans in the United States.

  The cost of insuring against default on these loans has rocketed in recent weeks, from 50 basis points over Libor to 1,200, raising fears that a credit crunch could spread to the rest of the property market.

  Low-grade BBB-rated securities -- measured by the ABX index -- have crashed from near par of 100 in early November to 72.5 this week.

  Peter Schiff, head of Euro Pacific Capital, said the sector was in an unstoppable meltdown. "It's a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults," he said.

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