Analyst: Another $200 Billion of B&C Losses Possible.

New Orleans -- An estimated 40% of outstanding subprime mortgage loans could go into default over the next three years based on current economic assumptions, according to Michael Bykhovsky, president of Applied Analytics, San Francisco.

With an estimated loss severity in the range of 50%, that could lead to $200 billion in additional losses related to defaults on subprime credit quality home loans. Mr. Bykhovsky said there are an estimated $1 trillion of subprime home loans outstanding.

Mr. Bykhovsky emphasizes that these projections can change depending upon economic circumstances, but he is skeptical about the term modifications being proposed as part of streamlined efforts to support subprime borrowers.

"It will help, but not hugely. A lot of subprime loans will default anyway," Mr. Bykhovsky said during a press briefing sponsored by Fidelity National Information Services, the parent of Applied Analytics. The briefing was held during the Mortgage Bankers Association's National Mortgage Servicing Conference here.

In fact, based on economic assumptions that include two more years of housing price declines before home prices nationally begin to appreciate again, Applied Analytics anticipates that default rates may not start to trend downward until about 2011.

That dire outlook reflects the impact of declining home values on outstanding subprime mortgage loans, Mr. Bykhovsky said.

Over the next three years, he believes based ...