Friday, August 10, 2007

Mortgage rates drop, BNP Paribas freezes securities funds

BNP Paribas, the biggest French investment bank, said it cannot value the assets in three of its asset-backed securities funds and is therefore temporarily suspending redemptions. The funds have lost $0.9 billion in the past three weeks, almost a third of their value in July. BNP Paribas said in a statement that, “regardless of their quality and credit rating”, it is impossible to value the assets because they don’t get any bids from investors. Approximately a third of the funds’ investments are backed by subprime paper but the panic in the U.S. credit market itself has caused much of the problem. Other funds are also losing value or being frozen by financial institutions in the current market, because the underlying assets cannot be sold at what would be considered fair prices.

Amid such problems in the financial markets, interest rates dropped this week, with the 30-year fixed home loan declining to 6.59% from 6.68% last week. The 15-year adjustable-rate mortgage averaged 6.25%, down from 6.32% a week ago. 5-year adjustable mortgages carried an interest rate of 6.33%, compared to last week’s 6.29%. 1-year ARMs were at 5.65%, up from 5.59%.

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