US home woes 'near-perfect storm'

Washington Mutual chief executive Kerry Killinger said the result would likely be falling house prices across many parts of America into 2008.

Centred on the sub-prime sector, the crisis in the US mortgage market has been sparked by record loan defaults.

Washington Mutual may put aside an extra $500m (£247m) to cover bad loans.

This would come on top of the $1.5bn to $1.7bn of exposure the company - now America's sixth largest mortgage lender - had forecast in July.

"Most housing markets appear to be weakening, to us," said Mr Killinger.

Global issue

In recent weeks, US house price figures have been mixed.

Last month, the Commerce Department said new homes sales held up in July, while further figures from the National Association of Realtors showed sales of existing properties fell to a near five-year low in the same month.

The crisis in the US sub-prime mortgage sector has been sparked by American mortgage rates rising sharply over the past year.

As a result more than 50,000 jobs have been lost in the US mortgage industry so far this year, including 12,000 announced last week by the largest lender Countrywide.

The crisis has spread overseas, and to the wider global financial sector, because US sub-prime debt is often resold as part of a wider debt package.

As a consequence, banks and investors are, as yet, unsure about how far the sub-prime downturn could spread.

In turn, global banks have become far more cautious about whom they lend to, and are stockpiling funds to cover any potential liabilities of their own.

The result has been a sharp downturn in available credit, and higher lending rates, both for companies wishing to borrow, and individuals trying to get a mortgage.

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