Magazine article American Banker

Demand for Adjustables at Highest Level since '89

Magazine article American Banker

Demand for Adjustables at Highest Level since '89

Article excerpt

An abrupt shift in consumer preference has pushed demand for adjustable-rate mortgages to a five-year high.

Home loans carrying adjustable rates accounted for nearly 36% of all mortgages written in May - the highest level since June 1989. according to the Federal Housing Finance Board.

The loans' share of the market was up from 31% in April and just 23% in March. The average for last year, during the refinancing boom, was about 20%.

With interest rates rising, consumers have been drawn to adjustables due to their relatively low starting rate. Last week, lenders offered one-year adjustables at an average of 5.45%, versus 8.65% for 30-year fixed-rate loans, according to Butler, N.J.-based HSH Associates.

Unexpected Surge

David Lereah, chief economist for the Mortgage Bankers Association, said the gain for May was larger than he had expected and attributed it to below-market introductory rates that are being offered by many banks and thrifts.

The big thrifts have been especially aggressive in marketing adjustables in recent months, triggering intensive price competition and sending their volume skyward.

A spokeswoman for Home Savings Bank, Irwindale, Calif., said 98% of its originations were adjustables in May, up from 93% in April and 86% in March.

But as the federal data show, mortgage banks haven't been sitting on the sidelines. Adjustables accounted for 21% of mortgage companies' originations in May, up from 11% in April.

"The secondary market for ARMs is much more developed now than it was the last time adjustables were popular," said Mr. …

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