2 That said, the tightening of terms and standards now in train may well lead to some further contraction in nonprime originations in the period ahead. We are also likely to see further increases in delinquencies and foreclosures this year and next as many subprime adjustable-rate loans face interest-rate resets. We will follow developments in the subprime market closely.
However, fundamental factors – including solid growth in incomes and relatively low mortgage rates – should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system.