The issuance of subprime mortgage-backed securities totaled $25.9 billion in June, down nearly 55% from the level recorded in June 2006, and a Friedman Billings Ramsey researcher says he expects subprime securitizations to remain at the $25 billion-a-month level for the rest of the year."It looks like a sustainable rate," FBR managing director Michael Youngblood said, considering that the rate on the 10-year Treasury note dropped below 5% recently, which should help to make subprime fixed-rate product more attractive to borrowers. However, the FRB researcher said he will be looking to FBR's August report for confirmation. He noted that July is a seasonally weak month for subprime MBS issuance. Mr. Youngblood said there are multiple factors involved in the sharp decline in subprime MBS and originations, including the decision by some major lenders to stop offering popular subprime products -- adjustable-rate 2/28 and 3/27 mortgages. In addition, there is a shift to fixed-rate products as lenders tighten and underwrite ARMs at the fully indexed rate. Right now a newly originated subprime fixed-rate loan at 9.5% is more attractive to a borrower stretching to buy a home or refinance than a 2/28 ARM at 9% because the fully indexed rate is 11.25%. "If you are underwritten at a higher rate, you will go for the fixed rate," Mr. Youngblood said in an interview.

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