China may be forced to bail out banks that made loans for local-government projects under the unprecedented stimulus program unleashed in 2008, according to Citigroup Inc. and Northwestern University’s Victor Shih.

In a “worst-case scenario,” the non-performing loans of local-government investment vehicles could climb to 2.4 trillion yuan ($350 billion) by 2011, Shen Minggao, Citigroup’s Hong Kong-based chief economist for greater China, said yesterday.

“The most likely case is that the Chinese government will engineer a massive financial bailout of the financial sector,” said Shih, a professor who spent months researching borrowing by about 8,000 local government entities.

Chinese officials pledged this week to limit the risks posed by the investment vehicles, which circumvent restrictions on local-government borrowing to channel money into stimulus projects. Yan Qingmin, head of the banking regulator’s Shanghai branch, said March 5 that China plans to nullify guarantees provided by local governments for some loans.

Read More: – By Paul Panckhurst, Kevin Hamlin, and Susan Li, Bloomberg

U.S. prime jumbo mortgages backing securities at least 60 days late rose to 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” according to Fitch Ratings.

“The trend line for delinquencies indicates the 10 percent level could be reached as early as next month,” Vincent Barberio, a Fitch managing director in New York, said today in a statement. The rate of non-performing loans almost tripled in 2009.

Read More: – by Jody Shenn, Bloomberg

WASHINGTON — The foreclosure crisis likely will persist well into next year as high unemployment pushes more people out of homes, pulls down housing prices and raises concerns about the broader economic recovery.
The latest evidence was a report Thursday that a rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure. That’s a shift from last year, when riskier subprime loans drove the housing crisis.
The report from the Mortgage Bankers Association also found that 14 percent of homeowners with a mortgage were either behind on payments or in foreclosure at the end of September. It was a record-high figure for the ninth straight quarter.

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