NEWS / Foreign Exchange

Subprime Market Update

• Subprime foreclosures are expected to increase in 2007 and 2008 as ARM reset
• Pending home sales increased in the two first months of 2007, breaking the 2006 tendency
• A growing number of indicators suggests that housing adjustment is near its bottom

New Joint Economic Committee report reveals serious local economic impact of subprime mortgage fallout across Country. Subprime foreclosures are expected to increase in 2007 and 2008 as 1.8 million hybrid ARMS reset in a weakening housing market environment. In order to prevent of a reoccurrence of a large number of unsuitable loans, the report recommends the following strategies:

• Increase Federal support for local foreclosure prevention programs.
• Strengthen and reform FHA.
• Strengthen regulation of mortgage origination at Federal level.
• Create a Federal anti-predatory lending law that bans unfair and deceptive practices.
• Establish borrowers??™ ability to pay standard.
• Enhance disclosure practices for mortgage products.

Related with that, the US Congress Financial Services Committee will next week debate a bill aimed at reducing the flow of finance from capital markets into the subprime mortgage sector. If bill is passed, depending on the terms, it could damage the mortgage industry in the coming years.

Pending homes sales increased in the first two months of 2007, according to the National Association of Realtors (NAR). Sales of pending homes (12 months accumulated figures) averaged 6.57 millions of units in the January-February period, 0.3 millions of houses above the average for the fourth quarter of 2006. Despite of the change in the last year tendency, that figure fell 4.1% in relation with the two first moths of 2006 average. The Pending Home Index, a leading indicator for the housing sector based on the contracts signed month by month, increased 0.7% in February to an index of 109.3 from an upwardly reading of 108.5 in January, but it was a 8.5% lower than February 2006 index. Aside from December, which got a lift from mild weather, the February index was the highest since Jun-06.

Despite of the evolution of pending homes for sale, new homes sales (12 months accumulated) in February 2007 fell 3.9% to a total of 848.000 units from a month earlier figures. It was 18.3 percent lower than February 2006. New homes sales probably will decline 16% to 0.9 millions of units in 2007, while existing homes sales could decrease a 2% to 6.34 millions, according to the NAR forecast.