Magazine article Mortgage Banking

Shift to Interest-Only and Alt-A Loans in First Half of 2005

Magazine article Mortgage Banking

Shift to Interest-Only and Alt-A Loans in First Half of 2005

Article excerpt

FROM THE LAST HALF OF 2004 TO THE FIRST half of 2005, first-mortgage origination volume rose, according to MBA.

MBA's Midyear 2005 Mortgage Originations Survey, which covered single-family mortgage originations during the first and second quarters of 2005, provided evidence of the increased popularity of nontraditional products such as interest-only (IO), option adjustable-rate mortgages (ARMs) and alternative-A mortgages.

The MBA survey, which included data from more than half of the mortgages originated last year, showed that the dollar volume of first-mortgage originations increased 10 percent from the second half of 2004 to the first half of 2005. The survey also provided evidence of a shift in consumer demand from traditional ARM products to IO and alt-A products, according to MBA.

While the ARM share of originations, excluding IO loans, decreased from 46 percent to 36 percent during the first half of 2005, the share of originations that were IO loans increased from 17 percent to 23 percent, and the share of originations that were alt-A loans increased from 8 percent to 11 percent, said MBA.

"With the difference in ARM rates and fixed rates narrowing, consumers have shifted from traditional ARMs to nontraditional products such as option ARMs and interest-only loans," said MBA Chief Economist Doug Duncan. …

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