U.S. and Canadian banks face limited exposure to subprime mortgage losses and future rating downgrades, bond rating company DBRS said on Thursday.

The U.S. mortgage market has been hit by rising delinquencies and defaults on subprime loans made to risky borrowers, setting off a wave of rating downgrades of related securities in July. Healthy earnings should insulate financial institutions, DBRS analysts said on a conference call.

There has been a lot of over-reaction in the market, said Alan Reid, a DBRS managing director of U.S. financial institutions in New York. We do not expect wholesale downgrades of banks with exposure to subprime.

The rating company has re-evaluated its views on some mortgage companies. DBRS on Thursday changed its view on IndyMac Bancorp Inc. (IMB.N: Quote, Profile, Research), one of the largest independent U.S. mortgage providers, to stable from its previous positive rating trend.

DBRS also revised CIT Group Inc., the commercial and consumer lender, to stable from positive on July 20. CIT said last month that it is exiting the mortgage business.

U.S. banks, including Citigroup Inc., Wachovia Corp. and Bank of America Corp., reported higher-than-expected quarterly earnings last month as their banking activity helped offset a decline in credit quality and concern about bad loans.

The banks face some risks from subprime but the strength of their earnings will help them to ride that out, said Roger Lister, chief credit officer for U.S. financial institutions at DBRS. The fundamentals are fairly strong.

Brenda Lum, who covers Canadian banks for DBRS, reiterated remarks made in a report on Wednesday that said Canada's five largest banks also face limited losses from their exposure to U.S. subprime loans.

There are no credit rating implications for the five largest Canadian banks, Lum said. There is minimal impact.