WE’RE HEARING while some think adjustable-rate mortgages have been making a comeback, there are some differences in opinions.
“We haven’t noticed a real cyclical shift in ARM product” in terms of locked loan volume, said Paul Anastos, CEO of Mortgage Master.
“You might get a shift in borrowers inquiring about ARMs,” as
In contrast, 360 Mortgage president Mark Greco said, “We have seen a tick up, or an increase in our adjustable-rate products, particularly in our government lending because the government ARMs have a pretty good value-add for a lot of FHA and VA borrowers. We have probably seen about a 20% to 25% increase in that product moving over to an adjustable rate.”
Greco said most of the interest has been on the refinance side of the market. “Very little of the purchase business is really choosing to go to adjustable rates,” he said.
But Anastos said ARM inquiries are probably found more on the purchase side of the business and government borrowers generally prefer fixed-rate product, although he noted that rates as a motivation tend to take a back seat to some other motivators like consumer confidence when it comes to purchases.
In the conventional market, Freddie Mac’s latest quarterly refi analysis suggests fixed-rate loans have been preferred “regardless of what the original loan product had been.” Freddie found, for example, that 79% of borrowers who had a hybrid ARM refinanced into a fixed-rate loan during the second quarter, while only 2% of borrowers who had a fixed-rate loan chose an ARM.
While lenders may have some differences in views on ARM trends that may be due to varying markets they serve, one thing they do agree on is that the ARMs now are very different than in past cycles given that they are limited to a much smaller number of product types. They also agree that there is regulatory pressure aimed at ensuring that they are used only when appropriate, primarily in terms of borrowers’ confidence that they will move before these loans fixed-rate terms expire and they might be subject to higher interest rates, albeit ones that have much more conservative caps than in the past.
“ARMs kind of got a black eye” during the most recent downturn as many adjusted had high caps and adjusted dramatically, creating payment shock for borrowers that was compounded in many cases by overleveraged properties with dropping values, Greco noted. But today they are “not bad products,” and consumers, he said, are “better educated now.”
“A lot of people don’t like the risk of the ARM. It’s just not for everybody,” Anastos said. But nevertheless there are still some borrowers "that really like the ARM product,” he said.
Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.
