Lenders still struggling with a dearth of mortgage demand are finding business in a product attractive to borrowers in a high-rate environment.
The common 5/1 ARM touts a rate of 6.09% as of late June, according to the Mortgage Bankers Association. It's risen 152 basis points in the last 12 months, but still trails
Among all current borrower activity, ARMs make a fraction of volume, accounting for 6.5% of applications last week,
As loan amounts shrink, so does interest in ARMs; they made up around 17% of mortgages between $400,000 to $1 million in April, according to CoreLogic. The share still trumps the single-digit share of ARMs for mid-and-high priced loans last April as rates began to climb.
Borrowers use ARMs for low-priced mortgages at an even lower rate for loans between $200,001 to $400,000, with just 10% of those loans being ARMs, the analysis found.
Adjustable rate products were a staple of the pre-Great Recession housing market but nosedived afterward, from a 45% share of mortgages in 2005 to just 2% in mid-2009, according to CoreLogic. Rules around documentation in lending have shored up the product and they've
The share of ARMs among all origination activity has fluctuated between 8% and 18% in the past decade, according of CoreLogic. Lenders cite the mortgages as a
"It's important to note that there is no guarantee that mortgage rates will drop in the future, presenting an inherent interest risk that ARMs may lead to increased monthly payments," said Archana Pradhan, principal and economist at CoreLogic's Office of the Chief Economist.
