NEW YORK - At the inaugural Bear Stearns Adjustable Rate Mortgage Conference 2005 held here last week, participants focused on the incredible growth in the sector and investment opportunities resulting from it. However, concern about credit - still a great unknown due to the lack of performance data - kept rearing its ugly head.

"Borrower tastes have clearly changed," said Jeff Mayer, co-head of fixed-income at Bear, adding that ARMs have carved an enduring presence in the market. The numbers certainly support this statement. In Senior Managing Director Steven Abrahams' presentation (see Chart 1), he stated that in 2004, ARMs dominated the non-Agency MBS market with a 65% market share equivalent to $247 billion, up dramatically from 2003 when ARM issuance was at $125 billion or comprised 40% of the market. In 2005, projected volume is $197 billion, which would make up 68% of the non-Agency sector. "Non-Agency ARMs down 20% in volume, would still command a market share of over 65%," said Abrahams.

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