July 5 (Bloomberg) -- Delinquencies and defaults on U.S. subprime mortgages will keep rising as borrowers who received loans under relaxed underwriting standards miss payments, said Robert Parker, vice chairman of Credit Suisse Asset Management.

The share of U.S. subprime mortgages entering default in the first quarter was the highest in almost five years, according to the U.S. Mortgage Bankers Association, as the country had its biggest decline in housing prices since the 1930s.

``It's naïve to assume the worst is past us in the U.S. subprime market,'' Parker said at a bond market conference today in Hong Kong. ``At least over the balance of this year, the subprime default rate will rise.''

Defaults in subprime mortgages forced New York-based Bear Stearns Cos. last month to provide $1.6 billion in credit lines to rescue one of its hedge funds. Cambridge Place Investment Management LLP said last week that it will close Caliber Global Investment Ltd., a London-listed fund invested in subprime mortgage debt that had $908 million of assets in March.

Parker, who is based in London and helps oversee $502 billion, doesn't expect mounting defaults in subprime mortgages to spread to other markets or hurt the U.S. economy.

``The problem is confined to subprime,'' he said. ``The problem is not over but it is not presenting a systemic risk to the U.S. financial system or to the U.S. economy.''

Slump Ending

U.S. bank executives also say the subprime problems haven't spread to other parts of the mortgage market. Bank of America Corp. Chief Executive Officer Kenneth Lewis said last month he expected U.S. growth to accelerate soon because the housing slump is coming to an end.

Subprime defaults are expected to rise as initial lower rates offered to lure borrowers expire after two or three years and many homeowners will face difficulty meeting the increased monthly payments on their mortgages. Subprime mortgages are offered to people with the worst credit records.

``Those CDOs which have collateral pools outside subprime, we are seeing very low default rates, no widening of credit spreads, so as a result the risk factor of those CDOs or CLOs remains very low indeed,'' Parker said in an interview on June 27. ``The only area where we are seeing an increase in default rates obviously is in the subprime market. The subprime market clearly is in trouble.''

CDOs or collateralized debt obligations are securities backed by bonds, loans, derivatives and other CDOs. A CLO is a pool of corporate loans sliced into tranches with different credit ratings and maturities to cater to investor preferences.

U.K. Lenders

Homeowners with about $515 billion of adjustable-rate home loans will pay more this year, and another $680 billion worth of mortgages will reset next year, Bank of America analysts said last month. More than 70 percent of the total was granted to subprime borrowers, they said.

``We haven't seen any noticeable increase in the default rate yet, but it's only a matter of time before the credit cycle changes direction and the current loose credit cycle is replaced by a tighter one,'' Eric Tutterow, senior director at Fitch Ratings, said in an interview. ``Then you will begin to see an increase in defaults'' as borrowers ``are unable to refinance their maturing debt.''

`Serious Wider Consequences'

In the U.K., lenders are providing mortgages to customers who don't need them and might not be able to afford them, practices that may lead to ``serious wider consequences,'' the country's Financial Services Authority said in a report released on July 4. All the subprime-mortgage lenders examined failed to apply responsible lending standards, and five of 34 intermediaries are being investigated and may be punished, the regulator said.

Mortgage brokers often give bad advice, and U.K. lenders are repeating mistakes made in the U.S. by failing to check whether information they were given by applicants was believable. Poor record-keeping at some mortgage brokers means they were unable to prove mortgages sold to clients were suitable, the FSA said.

The U.K. regulator didn't name the five brokers being investigated. The study examined 11 subprime lenders representing 50 percent of sales.

The number of Britons entering bankruptcy rose to a record in the first quarter as consumers buckled under higher borrowing costs. Individual insolvencies in England and Wales increased 24 percent from a year earlier to 30,075, the Department for Trade and Industry said. The number of insolvencies was the highest since records began in 1960.

To contact the reporter for this story: Patricia Kuo in Hong Kong at pkuo2@bloomberg.net.

Last Updated: July 5, 2007 16:19 EDT