The sub-prime mortgage crisis still has about half its course to run, according to an executive director of investment bank Morgan Stanley.

Speaking at the Bermuda Captive Conference yesterday, Christopher Rasmussen warned that the wave of payment defaults and delinquencies that has swept the US in the midst of a slump in property values would continue for sometime yet.

"We're probably half way through it," Mr. Rasmussen told delegates at the Fairmont Southampton during a session focusing on the sub-prime crisis.

"There is a large housing inventory that will have to be reabsorbed. We will probably see foreclosures increase through the remainder of 2008 and levelling out in the first or second quarter of 2009."

Sub-prime refers to mortgages taken on by high-risk borrowers, those with poor credit records. A steady rise in interest rates and large fall in US property values caused many of those borrowers to lose their homes or fall behind with payments.

The crisis has sparked a domino effect as many structured investment products, backed by sub-prime mortgages, plunged in value, leading to huge write-downs and billions of dollars of losses for banks all over the world. The debacle has led to a credit crisis, in which money has become much more difficult and more expensive to borrow.

Mr. Rasmussen said many sub-prime mortgage holders would be coming to the end of their two-year "teaser period" during which they paid a low introductory rate of interest. When the higher interest rates kick in, there will be more delinquencies, he said.

"Subprime borrowers had very thin equity to start with and that has evaporated during the property slump," he said. "We will see a lot of defaults through the inability to refinance their mortgages."

Another panellist, Andrew Baron, senior portfolio manager (fixed income) at Butterfield Asset Management, saw similar problems lingering even further ahead.

"The big question is whether we will see a return to the kind of availability of credit we saw in the past," Mr. Baron said. "People on five-year resets may not be worried now, but unless we see a return to the credit availability of 2005/06, then those people, if they are not prime borrowers, will not be able to refinance at a reasonable rate of return.

"People who get a loan when they shouldn't get a loan — I think that part of the market will take a very long time to come back."

Mr. Baron said he had given previous presentations on the sub-prime issues in January, when the total value of write-downs by financial institutions stood at $133 billion, and then in March, when it had climbed to $188 billion. "This week, Bloomberg are estimating $392 billion," Mr. Baron said. "That sounds like this problem is still accelerating. Some estimates are putting the eventual total write-downs at $1 trillion."

Mr. Rasmussen added that property values were estimated to be "20 percent more than they should be", even after the slump the US housing market has already undergone. Rising fuel and food costs would only exacerbate the sub-prime problem, he added.

"I think if the consumer is losing income that he could have otherwise used to service a mortgage, then that will lead to a higher propensity to default on a mortgage and that could push us into a recessionary environment as well," Mr. Rasmussen said.

In response to a delegate's question, Mr. Baron suggested the result of the US presidential election would make little difference to the country's economic problems.

"Whoever wins the election, if the Democrats have a majority that could override a presidential veto, then the Democrats are going to enact populist measures and that's likely to mean higher taxes, and that is a risk for the US economy," Mr. Baron said.