ARM Popularity Falls as Premiums Increase

Adjustable-rate mortgage lending fell sharply last year as the initial payment savings disappeared, according to a survey by Freddie Mac. "Our survey found that starting rates for conforming 1-year ARMs averaged 1.76 percentage points above their fully-indexed rate, the largest rate premium observed since Freddie Mac began collecting ARM data in 1984," said Frank Nothaft, chief economist at the firm. In addition, with rates on conforming, 30-year, fixed- mortgage rates falling to a 50-year low, consumers could find FRMs at rates about the same or in some cases lower than the initial rate on an ARM loan. In December, the ARM share of loan applications fell to 3%, the lowest ever recorded in Freddie Mac's survey. During the peak of the housing boom, the ARM share was around 36%, Freddie Mac said.