Hybrid ARMs Safe From Rising Rates?

Rising interest rates and weak real estate fundamentals are unlikely to substantially affect the performance of longer-term hybrid adjustable-rate mortgage loans, according to Fitch Ratings.Noting that the product is "still fairly new" and has not been tested during an extended period of rising rates, Fitch said it "anticipates that longer-term hybrid ARM loans will continue performing on par with their prime jumbo fixed-rate mortgage counterparts." Prime jumbo ARMs with a five-year fixed-rate period or longer have performed comparably to prime jumbo FRMs "due largely to comparable underwriting guidelines and borrower credit characteristics," the rating agency said. Additionally, long-term hybrid ARMs are less similar to standard ARMs because the latter have shorter or no initial fixed-rate periods and are more likely to appeal to borrowers solely for reasons of affordability, Fitch said. The rating agency can be found online at http://www.fitchratings.com.