SAN DIMAS, Calif. — Despite gloomy forecasts about the economy and continued sub-prime fallout, executives attending yesterday's Southern California/Arizona CUES council event yesterday had something to cheer about: predictions of a return to a steep yield curve.

When Bob Burrell, WesCorp's executive vice president/chief investment officer, told the CUES crowd they might see loan yields return to spreads as high 200 basis points, he literally drew cheers. Burrell said he expects the Fed rate to drop to around 2.5% and stay there for most of the year, but he wouldn't be surprised to see it drop to 2%.

"Mortgage loans are now 50 to 100 points wider than they were just a few months ago, and the 15-year spread is very wide," Burrell said, adding that 30-year jumbo loans are also a good deal. He cautioned, however, that qualified borrowers might be hard to come by. Forecasts of dropping home prices — 15 to 30% nationwide, and even more in California — will increase affordability for new buyers, but will further hamper refinancing efforts.