Lately, we've all heard a lot about the mortgage problems at many U.S. sub-prime lenders. Over the last few months, 25 institutions have either failed or closed due to soaring deliquencies on risky loans. But what about Europe? The Old World has certainly been home to a huge historical bull market in housing over the last 20 years. Has the rise in delinquencies in America also affected trends in Europe for mortgage-financing?

Sub-prime lending is not a major source of real estate financing in Europe. In some markets, like England, sub-prime loans are too small to really hurt the sector. It's pretty much the same story in red-hot markets like Spain, France and Italy, to name only a few. That's because real estate lending standards across most of Europe is far stricter than in the United States and to a lesser extent, Canada.

In England, many risky loans were indeed made over the last several years and some lenders are hurting; but the trend is not threatening the banking sector and over the last 12 months, the worst of England's sub-prime crisis, if you can call it that, has passed.

The United States, and especially Wall Street, has a knack for perpetuating a bull market in any asset class through the creation of specialized products designed to increase leverage. The sub-prime market is loaded with packaged loans, or CDOs (collateralized debt obligations), which are falling in price lately as the sector comes undone. An estimated 25% of all U.S. residential real estate loans are considered sub-prime.

In the end, I think the sub-prime crisis will remain contained to that part of the real estate market. Overall, U.S. delinquency rates are still at historically low levels and many hedge funds are now circling the distressed sub-prime market for big bargains following huge declines in the value of high-risk loans.

Provided the Federal Reserve cuts interest rates this year to alleviate real estate stress, the bear market in housing should form a bottom as liquidity is generated to stimulate demand. The worst possible scenario for real estate would be higher interest rates; the last thing the United States needs now is a further squeeze on liquidity.