Freddie Mac released its annual ARM survey of prime loans for 2007 last week. Based on the survey, the GSE reported a sharp decline in interest-rate discounting of prime ARM loans as well as tighter credit underwriting resulting from the disruptions in the capital markets that started in August.
For example, the initial-rate discount a year ago on 3/1 and 5/1 hybrid loans was about 1.8 percentage points, said Freddie Mac Chief Economist Frank Nothaft. But, in the firm's latest survey, the rate discount had virtually disappeared for these products. For 3/1s, the agency's survey reported the initial year's discount at 0.17 and 0.03 for 5/1s.