June 22 (Bloomberg) -- Losses in the U.S. mortgage market may be the ``tip of the iceberg'' as borrowers fail to keep up with rising payments on billions worth of adjustable-rate loans in coming months, Bank of America Corp. analysts said.

Homeowners with about $515 billion on adjustable-rate home loans will pay more this year, and another $680 billion worth of mortgages will reset next year, analysts led by Robert Lacoursiere wrote in a research note today. More than 70 percent of the total was granted to subprime borrowers, people with the riskiest credit records, they said.

Surging defaults on subprime loans have pushed at least 60 mortgage companies to close or sell operations and forced Bear Stearns Cos. to offer a $3.2 billion bailout for one of two money-losing hedge funds. New foreclosures set a record in the first quarter, with subprime borrowers leading the way, the Mortgage Bankers Association reported.

``The large volume of subprime ARMs scheduled to reset at higher rates in '07 and '08 will pressure already-stretched borrowers,'' putting more loans into foreclosure, the Bank of America analysts wrote from New York. A collapse of the Bear Stearns funds ``could be the tipping point of a broader fallout from subprime mortgage credit deterioration,'' they said.

Hedge Funds

Bear Stearns, the second-biggest underwriter of mortgage bonds, offered to provide $3.2 billion of financing to rescue one of its hedge funds. Concern about the collapse of the funds, which made bad bets on securities tied to mortgages, sent bonds and stocks of finance companies lower.

Bank of America Chief Executive Officer Kenneth Lewis said in an interview earlier this week that job growth will likely blunt the effect of rising mortgage payments and defaults on home prices and housing starts. U.S. job growth accelerated last month as payrolls increased 157,000 and the jobless rate stayed at 4.5 percent. Economic growth has been crimped by the housing sector every quarter since late 2005.

``The drag stops in the next few months,'' Lewis said in a June 19 interview in New York, when asked about his outlook for the housing market. ``It's just about to be over. We're seeing the worst of it.''

Homeowners who can't afford to pay higher interest rates may struggle to sell their properties as home price increases slow, and stricter lending standards will make it harder to refinance, the Bank of America analysts wrote today. Interest payments on about $900 billion of the riskiest subprime home loans are due to increase this year and next, they said.

LaCoursiere is the top-rated mortgage-industry analyst based on investment return from his recommendations, according to StarMine Corp.

Sell Recommendations

Countrywide Financial Corp. and IndyMac Bancorp Inc., two of the largest U.S. home lenders, may suffer more than other finance companies because they hold mortgages as well as selling them off to investors, the analysts wrote. The companies may not have set aside enough money to cover losses, said Bank of America, which has a ``sell'' recommendation on both lenders.

Countrywide spokesman Rick Simon didn't return a call seeking comment from the Calabasas, California-based company. Michael DiVirgilio, a spokesman for Pasadena, California-based IndyMac, said executives weren't available to comment.

The proportion of income that U.S. households with mortgages used for making payments in the first quarter of 2007 was close to or above the previous high in the late 1980s and early 1990s, the analysts said. U.S. mortgage borrowers will continue to find it harder to pay their debts until the end of next year, the analysts said.

Shares of Bear Stearns fell $2.06, or 1.4 percent, to $143.75 in New York Stock Exchange composite trading. IndyMac lost $1.07, or 3.3 percent, to $31.32 and Countrywide declined 74 cents, or 2 percent, to $37.18.

To contact the reporters on this story: Sebastian Boyd in London at sboyd9@bloomberg.net; Will Edwards in Charlotte, North Carolina, at wiedwards@bloomberg.net.

Last Updated: June 22, 2007 16:42 EDT