Adjustable-rate mortgages and interest-only products accounted for 63% of mortgage originations in the second half of last year, according to a survey by the Mortgage Bankers Association.The Single-Family Mortgage Activity Survey also found that nonprime and alternative-A loans increased their market share to nearly a third in the second half, ARM originations split almost evenly between traditional and hybrid ARMs, and the dollar volume of second-mortgage production rose 17% from that of the first half, the MBA reported. MBA chief economist Doug Duncan said consumers typically shift to ARMs when long-term rates rise at the end of a refinance boom and the spread between long- and short-term rates widens. "This interest rate cycle is unusual in that the increase in ARMs has occurred with a much smaller increase in rates than in past cycles," Mr. Duncan said. "One reason is that house-price appreciation leading up to this ARM cycle was much stronger than in previous ones, creating affordability constraints that led a number of buyers to seek lower payments with ARMs."

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