Adjustable-rate mortgages made up about one-third of total mortgage origination in 1999. Because of the continued rise in fixed-rate mortgage rates, many are predicting this trend to continue well into 2000.

The borrower, rather than the lender, drive the interest in ARMs, which made up only 8% of origination volume in 1998. "It's the fact that mortgage rates have gone up so sharply from their lows a little over a year ago that people don't want to lock in those long rates for 30 years," said Art Frank, head of mortgage-backed securities research at Nomura Securities. "They would rather take an ARM and have the option of refinancing when rates go down."

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