THE BASIS POINT

WeeklyBasis 03/26/07: Allow Markets to Correct Subprime Troubles

Fixed and ARM rates have been even for about a month despite all of the trouble with the sub-prime sector. A spill-over into the rest of the mortgage industry seems unlikely, especially if lawmakers can stop themselves from making new laws after the fact. In the face of new regulations, sub-prime borrowers wouldn’t stand a chance of refinancing into more stable products. At least now, overly-leveraged borrowers still have refinance options. If new laws close off these options, foreclosures rise and banks are forced to load up their books with homes instead of defaulted loans. They’d then be forced to sell homes sell at deep discounts relative to open market prices – this scenario is bad for homeowners, banks, Realtors, and the broader economy. As most Wall Street firms are saying to Congress: Let the market do it’s job in correcting the housing sector. A perfect example of markets doing their job is today’s New Home Sales report showing February sales were the slowest since 2000, when the dot-com boom ended and the housing boom got started. Other important data this week is Tuesday’s Consumer Sentiment and Friday’s Consumption Expenditures, which is a measure of inflation. I think we’re likely to be the same rate range for yet another week, unless we get a rate dip from weaker-than-expected data.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.125% (6.39% APR)
10/1 ARM: 6.375% (6.515% APR)
5/1 ARM: 6.125% (6.275% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.25% (6.39% APR)
10/1 ARM: 6.375% (6.515% APR)
5/1 ARM: 6.125% (6.275% APR)