June 26 (Bloomberg) -- Freddie Mac Treasurer Timothy Bitsberger said the subprime mortgages slump is ``severe but contained.''

While rising defaults on subprime loans have pushed at least 60 mortgage companies to close or sell their operations and forced Bear Stearns Cos. to offer a $3.2 billion bailout for one of two money-losing hedge funds, the number of borrowers potentially affected is limited, Bitsberger said in a speech in London today.

Problems are ``very well defined'' and largely confined to a small percentage of borrowers in seven states, Bitsberger told Euromoney's investor conference. The holders of subprime mortgages are ``large institutional players who can withstand the loss.''

The biggest risks include a possible overreaction by regulators and home buyers, said Bitsberger, a former U.S. Treasury official. Other risks include the potential fallout if investors and hedge funds rush to unwind their positions, he said.

The market's ``financial infrastructure'' is ``untested,'' given the pace of growth in bonds backed by mortgages and other debt, known as collateralized debt obligations, and credit- default swaps, he said.

The markets for asset-backed debt and credit derivatives are ``still relatively young and relatively new and we've still yet to see a shakeout,'' he said. ``The jury's still out as to how this will play out. I don't want to say that we're in untested waters but it does scare a lot, it does become a bigger issue among many more hedge funds.''

To contact the reporters on this story: Neil Unmack in London at nunmack@bloomberg.net; John Glover in London at johnglover@bloomberg.net

Last Updated: June 26, 2007 06:48 EDT