Newspaper article THE JOURNAL RECORD

Higher Rates Keep Mortgage Lenders Up in ARMs

Newspaper article THE JOURNAL RECORD

Higher Rates Keep Mortgage Lenders Up in ARMs

Article excerpt

Associated Press

NEW YORK _ Higher interest rates are forcing more homebuyers to embrace ARMs once again.

Virtually ignored only a year ago when rates on fixed mortgages plunged to a near three-decade low, adjustable rate mortgages, or ARMs as they're called, offer some consumers a more palatable home-financing alternative.

Rates on some one-year ARMs are as much as 4 percentage points below those of prevailing fixed-rate loans, now hovering at a 2-year high of around 9 percent. Even ARMs with higher initial rates locked in beyond a year are becoming increasingly popular.

"This keeps the homebuying process going," said Gay Greene, senior vice president at Sibley Mortgage Corp. in Rochester, N.Y., where ARMs now make up around half its mortgage originations and where business is down by about 50 percent over last year.

ARMs comprised 43 percent of the total mortgage volume at the height of the busy home-buying season in August, a six-year high. That was up from 24 percent in January and just 16 percent the same time a year ago, according to the latest data from the Federal Housing Finance Board.

Some industry experts predict their market share will surpass that of fixed-rate mortgages in the weeks ahead as interest rates continue to creep higher in the Treasury bond markets in response to inflation fears.

"There's no doubt rates are going to move up," said William V. Sullivan, an economist at Dean Witter Reynolds Inc. "The economy is moving ahead. ... Even moderate growth has a chance of stirring inflation."

Sullivan predicted rates on 30-year conventional fixed-rate mortgages would rise another quarter- to half-percentage point this year. "(But) I don't think you're going to get up to 10 percent," he said.

Only one year ago, by mid-October 1993, the 30-year mortgage had hit a 28-year low of 6.83 percent after remaining in the 7 percent range for most of the summer.

That year, many homeowners saw the historical drop as an opportunity to switch from an adjustable mortgage to a fixed-rate, preferring their stability. …

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