BankUnited Scaling Back Option ARM Lending

BankUnited Financial Corp., Coral Gables, Fla., a major player in the payment-option ARM market, is scaling back its production of these somewhat controversial loans. A spokeswoman confirmed that only the company's private banking customers will be eligible for payment-option adjustable-rate mortgages. Until recently BankUnited was originating option ARMs to all customers, regardless of their income levels. "We always underwrote the loan to the fully indexed rate," said the spokeswoman. "If they qualified at the fully indexed rate, we would make the loan." Option ARMs have stirred controversy because they offer borrowers four different payment options each month, including negative amortization. BankUnited holds $7.4 billion in option ARMs on its balance sheet. The loans account for 69% of its residential loan balances. Private banking customers have higher incomes than average clients.