US mortgage interest rate resets, which are expected to deepen the sub-prime loan crisis, will not hit their peak until January next year and will remain high until 2009, a senior investment manager said yesterday.Morgan Stanley Investment Management Australian equities portfolio manager, Mark Skocic, said at an investor briefing that the current rate of resets was running at about US$20 billion a month.That amount would rise to a peak of more than US$40 billion by January and then continue at that level until the end of the year. Resets would not get back to US$10 billion a month until early 2009.Skocic said: "No one knows if the sub-prime crisis will cause a recession in the US but we do know that there are 15 more months of resets to go through. That is 15 months of uncertainty."A common US lending practice was to offer step-up loans, which gave borrowers deeply discounted honeymoon rates for two or three years. When the honeymoon period ended the reset could be as much as five percentage points.In many cases these loans were advanced on the assumption that the borrowers would refinance. But with the property market in retreat and a shortage of liquidity in the mortgage market refinancing will not be an option for many borrowers.Skocic said: "Credit market contagion continues to spread. There is higher risk for companies with high gearing, lots of short term debt and earnings that rely on M&A activity."Skocic said banks putting their conduit outstandings on balance sheet would be another constraint. "To the extent that the capital being allocated to conduits was earmarked for other activity, the banks will be pulling back."Morgan Stanley Australian strategist Gerard Minack said resets will knock 0.5 per cent off US GDP growth in 2008. He said: "US GDP is down around stall speed - two per cent. A reduction of 0.5 per cent is a problem."Minack said the Australian housing market was taking on dotcom bubble proportions. Highly leveraged households had been buoyed by tax cuts, which were consumers' share of Australia's improved terms of trade.Minack believes the mining boom is coming to an end and there will be no more magic pudding. The rising household debt servicing burden will not be offset by further tax cuts. "Our equity market boom has been built on imbalances in the household sector. There are going to be some consequences as that unwinds."