The share of adjustable-rate mortgages will rise to 9% of the home purchase market later this year, up from 7% at the current time and 3% in early 2009, according to Freddie Mac chief economist Frank Nothaft. This was among the findings of the company's 27th annual ARM survey.
At their heyday in June 2004, ARMs made up 40% of the purchase mortgage market. Nothaft said, “Homebuyers have shied away from ARMs because they are wary of the risks. The potential for much larger payments if future interest rates are significantly higher and the high delinquency rates borrowers have experienced on ARMs over the past couple of years have led consumers to prefer fixed-rate loans instead of ARMs.
"In addition, fixed-rate loans currently carry extraordinarily low rates, and initial ARM rates are only slightly lower, making fixed-rate product more attractive."
The survey found lenders quoted an initial rate that was above the fully-indexed rate on most ARM products. If short-term Treasury rates remain where they are, the first-rate adjustment would actually lower a homeowner’s mortgage payment, Freddie Mac said.
Among 112 ARM lenders, 71% offered loans tied to constant-maturity Treasury yields; the remaining offered products with future rates indexed to Libor.
This survey also found the most popular product is the 5/1, with 96% offering it. The 3/1 is offered by 71% and the 7/1 by 64%. The one-year conforming ARM is offered by only 45% of ARM lenders.
