Is California on the verge of a price war in adjustable-rate mortgages?

Some observers think so. The state already has the lowest rates in the country on one-year adjustables, just under 4% on average. And pricing is even more aggressive on loans that adjust more frequently.

But some veteran observers of the California scene say an out-and-out war is unlikely.

On one level, cutthroat pricing on adjustables would make sense: asset-starved thrifts could well be bidding aggressively for adjustables in a market tilted strongly toward fixed rates.

But one skeptical mortgage banker had this to say: "The mortgage banks can't sell the really low-rate loans to the secondary market, and the portfolio lenders have the regulators to contend with if they start getting a little crazy."

A few lenders are offering one-month adjustables at initial rates as low as 3.25%. Among the largest, North American Mortgage Co., Santa Rosa, was offering the lowest rate recently, 3.375%, indexed to Libor, which was also 3.375% at the time. That price was for a six-month adjustable with 1 1/8 points. A company spokesman said the rate was pegged 2.5 percentage points above Libor.

Another low-rate offer was from Union Federal Bank, 3.5% with half a point, adjustable monthly.

The average one-year adjustable rate in the Los Angele's area stood at 3.97% last week, against 6,96% for the 30-year fixed. The spread of 2.99 percentage points was the highest in the country.

Inflated Rates?

Keith T. Gumbinger, who tracks rates for HSH Associates, Butler, N.J., said, however, that the 30-year number may be artificially high because some institutions may be posting inflated rates for fixed loans to make their adjustables' rates look more attractive.

Fannie Mae will buy teaserrate loans under some circumstances, but requires that the borrowers qualify for 7% loans. The agency also has restrictions on temporary rate buydowns. Freddie Mac has similar restrictions.

Meanwhile, some scattered lenders in other states are outdoing the Californians by offering introductory rates below 3%, according to HSH.

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