Add the voice of Well Fargo CEO John Stumpf to those who are warning the mortgage crisis will get worse before it gets better. Stumpf says he believes the U.S. housing collapse, brought on by massive defaults of subprime mortgages, is the worst since the Great Depression.

Though Wells Fargo has so far managed to avoid most of the turmoil that has gripped other lenders, Stumpf says hes concerned that the frightening downward spiral in housing has not played itself out.

"We have not seen a nationwide decline in housing like this since the Great Depression," the banker told a Merrill Lynch banking conference in New York.

Stumpf had reassuring words for his companys stockholders, saying his bank is well positioned to weather the storm. However, he cautioned that losses from home equity loans will be higher than normal well into 2008.

Wells Fargo made more than $200 billion in home loans from January to September of this year, making it the second largest home loan lender, following Countrywide Financial, which is cutting 12,000 jobs after losing $1.2 billion in the third quarter.

Stumpf says Wells Fargo remains in a more stable condition because it never altered its lending policies to include more exotic mortgages, such as 100 percent, interest-only loans, and adjustable rate loans that allow borrowers to pay less than the principal due.

Foreclosure record

Home foreclosures have reached a record level in 2007 and Stumpf is not alone in his worries that the worst could be ahead. Earlier this month, Federal Reserve Board Governor Randall Kroszner told the Consumer Bankers Association that two considerations suggest that conditions for subprime borrowers have the potential to get worse before they get better.

The first problem, he said, is that all indications show that housing activity is continuing to weaken. Incoming data in recent weeks show that sales and new residential construction have continued to fall. In such an environment, house prices are likely to remain flat, if not actually decline.

More to come

But a bigger problem, he said, is that most of the adjustable rate mortgage resets have yet to occur. That means many more homeowners could face unaffordable increases in their mortgage payments and this year's record foreclosure rate could quickly be eclipsed.

On average, in each quarter from now until the end of next year, monthly payments for more than 400,000 subprime mortgages are scheduled to undergo their first interest rate reset, Kroszner said.

That number is up from roughly 200,000 per quarter during the first half of 2007. Delinquencies and foreclosures are therefore likely to continue to rise for a number of quarters.