Like measles, financial distress has a nasty habit of spreading. And the repeated protestations by mortgage originators that the problems in the US sub-prime market will not spread elsewhere could be an expression more of hope than experience. It is hard to see how the US prime market can remain unaffected: with 90-day-plus arrears now running at 25% in the US sub-prime sector it is inevitable that there will be a surge in distressed housing sales. This can mean only one thing for US house price appreciation (HPA), which already suffered its steepest fall in 30 years in the third quarter of 2006 – from 13.2% to 3.4%. There are already signs of weakness in the Alt-A mortgage market – one commentator told Euromoney in March: "In six to 12 months’ time the US prime market will be under stress – anyone with a US mortgage origination platform [prime or sub-prime] is going to get whacked. The train is loaded and it is rolling."
And what about elsewhere? Originating banks have gone to great lengths to explain why the non-conforming market in the UK will not suffer anything like the stress that its US counterpart has experienced.