Freddie Mac yesterday afternoon released the results of its 28th Annual Adjustable-Rate Mortgage Survey of prime loan offerings. The GSE conducted the survey from Jan. 3 to Jan. 5.

The numbers showed that ARM initial-period rates are at historically low levels and hybrid ARMs are stil the market's most common ARM product. 

The agency also reported that the initial-period rates on ARMs were at the lowest levels recorded in the history of the ARM pricing survey. This is partly a reflection, Freddie Mac stated, of the Treasury yields' low levels that are used as indexes.

The 5/1 hybrid ARM remains the most popular lender-offered loan product. Almost every ARM lender that took part in the survey offered this loan. The next most popular products were the 3/1 and the 7/1 hybrid ARMs, according to the GSE. Less than one-half of lenders offered the one-year adjustable loan, with merely 4% of lenders offering a 3/3 ARM that adjusts once every three years.

In early January 2012, the interest rate savings for the popular 5/1 hybrid ARM versus the 30-year fixed-rate mortgage was roughly 1 percentage point, roughly the same as during January 2011. 

There was little difference in the initial interest rate for the 1/1, 3/1 and 5/1 products, Freddie Mac reported. Longer-term hybrid products, including the 7/1 and 10/1 ARMs, were also available from 63% (7/1) and 38% (10/1) of those who took part in the survey. Given the long initial fixed-rate period, spanning seven or ten years, the initial interest rates were priced closer to the rate on a 30-year fixed-rate loan for these products.

Among 121 ARM lenders, the agency said that 65% offered loans were tied to constant-maturity Treasurys, down from 71% in 2011. According to the GSE, the remaining offered products were tied to future rates indexed to Libor. 

With the start of the European debt crisis, the one-year Libor rate less the one-year constant-maturity Treasury yield peaked over the week ending Jan. 6 at over 1 percentage point, Freddie Mac noted. This is versus around 0.5 percentage points over the same week in 2011.

Due to this, one-year Libor indexed ARMs might have adjusted up or did not adjust significantly down versus Treasury-indexed ARMs.  The uncertainty in terms of LIbor movements might have led some current borrowers to avoid Libor ARMs, the GSE stated.

The following link from Freddie Mac shows the Treasury-Indexed ARM Features in the January 2012 table.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.