Lenders that specialize in adjustable-rate mortgage products could face a tough time this year as ARM volume drops to 16% of originations, according to the chief economist at Freddie Mac.ARM production (based on number of loans) accounted for 21% of originations in 2006 and 31% in 2005. However, chief economic Frank Nothaft said he believes that a flat or inverted yield curve will make ARMs less attractive to borrowers. In addition, the recently-issued regulatory guidance on nontraditional mortgages "may have some effect as well," he told MortgageWire. Freddie's chief economist is forecasting that single-family originations will total $2.50 trillion this year, down from $2.65 trillion in 2006. He projects that refinancings will remain relatively high at 38% of originations, compared with 44% last year. "Some people are facing a payment shock, and some people want to tap into the huge amount of home equity they have accumulated," Mr. Nothaft said. Nevertheless, it looks like total originations and ARM production will be the lowest since 2001, he said. Freddie Mac can be found online at http://www.freddiemac.com.

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