Turbulence in the housing market remains largely restricted to the subprime sector, Timothy Bitsberger, treasurer and senior vice president at Freddie Mac, said on Tuesday.

Default rates in the subprime segment of the mortgage market -- which lends to borrowers with poorer credit ratings at higher interest rates -- have jumped in recent months as the housing industry has slowed and prices have fallen.

Fears have grown that this malaise could spread to other areas of financial markets and the broader economy.

But Bitsberger said subprime defaults are largely clustered in a handful of geographic regions. With most debt held by large institutional, investors are able to absorb some losses and the impact would likely be limited.

At Freddie Mac we expect credit losses to rise but we have not seen a spill over from subprime, Bitsberger said at a Euromoney conference in London.

There are some problems in the U.S. housing market but so far they are largely contained. If I have to worry, it's about market psychology.

Freddie Mac is the number two U.S. mortgage finance company.

At least 20 lenders in the subprime mortgage sector have gone out of business recently and this has triggered concerns that the fallout may spread to mainstream lenders and eventually harm the wide U.S. economy.

Those fears themselves are one of Bitsberger's key worries.

The recent sell-off in the U.S. Treasury market was exacerbated by mortgage players selling bonds to hedge the lengthening of their portfolios after 10-year Treasury yields jumped above 5 percent.

As rates rose, investors shifted from short-duration adjustable rate mortgages to fixed 30-year products, Bitsberger said.