Freddie Mac released its annual ARM survey last week. As in the last survey, the agency reported that lenders were offering bigger discounts for introductory ARM rates and noted the popularity of hybrid ARMs versus one-year ARMs. In addition, Freddie Mac also looked at the decline in ARM share of total lending as the interest savings versus fixed-rate loans has shrunk.
The first half of 2006 continued to see increases particularly in short-term rates as the Federal Open Market Committee continued to raise the Fed Funds rate. In order to stimulate ARM interest, lenders made greater use of initial-rate discounts. According to Freddie Mac, the discount at the end of 2006 for conventional, conforming one-year Treasury-indexed ARMs averaged 2.3 percentage points, up from 1.9 percentage points at the end of 2005. Analysts from the GSE pointed out that the last time initial rate discounts were higher was in 1997.Over the 23-year history of the survey, initial discounts on one-year ARMs have averaged 1.7 percentage points.