Total unmitigated disaster

That's what I'm talking about!

The subprime mortgage problem will worsen over the next year and the rate of loan delinquencies could rise further, an influential fund manager specializing in mortgage backed securities said on Wednesday.

Jeffrey Gundlach, chief investment officer at the Trust Company of the West (TCW) who oversees about $60 billion in assets, also said the worsening subprime woes would slow the economy down and lead to a cut in interest rates.

"The subprime area is a total unmitigaged disaster and it's going to get worse," Gundlach told Morningstar's annual investment conference in Chicago.

Gundlach, picked by research firm Morningstar as the best fixed income manager for 2006, said delinquencies in loans made to risky borrowers could rise as housing prices in the United States are declining, supply is growing and credit to subprime borrowers has been tightened, making refinancing difficult.

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