Aggressive teaser rates on home loans, commonplace not too long ago, appear to be losing popularity. Despite the slow market and lenders' desire to muster up business, few are offering especially low introductory interest rates.
According to HSH Associates, only 15 lenders offer ARMs at or below a benchmark rate of 5%. This figure has been in steady decline since a high in the second week of November, when more than 50 lenders offered bargain loans.
Small portfolio lenders are the only ones involved in this pricing. Large lenders are being more disciplined in pricing, experts say, mostly because they have already fattened their portfolios in recent months.
"They don't need to go on a pricing warpath," said Paul Havemann, vice president at HSH Associates. "They are sitting on what they have."
There is a lower level of origination volume, he said, and the largerlenders don't need cutthroat pricing to bring loans in the door. When competition was tough in May 1994, for example, more than a dozen thrifts offered starting rates below 4% and many more had rates below 5%.
There are some small savings banks in competitive markets, such as New Jersey, that are trying to hack out a share of the market with low teaser rates. Columbia Savings in northern New Jersey offers an initial ARM rate of 5%.
"This is a very competitive marketplace and we are competing with cost- of-funds ARMs," said John Henseler, vice president at the Fair Lawn thrift. Since the 11th District Cost of Funds index (COFI) is a lagging index, home loans linked to it have had a competitive advantage for the last year.
Previously, Columbia had offered ARMs at 5.125% and 5.25%. He said Columbia would reevaluate its rates this week.
"We are selling more one-year ARMs than other products, but that is slowing down now, too," Mr. Henseler said.
Another New Jersey lender thinks ARMs with low initial rates are profitable for a long-term strategy.
"For the pricing technique of adjustable loans, you have to take more into consideration than the initial interest rate," said John J. Vassallo, senior vice president at New Jersey Savings Bank, Somerville. He said that while the thrift may take a hit on the initial rate, the yield will eventually be adequate.
"We take a slight beating in the initial period, but it is most compatible with the asset-and-liability mix," he said. "The fallacy is to get everything today." Mr. Vassallo thinks New Jersey Savings has been successful because of the mix of loans it offers and holds.
Of course this still leaves mortgage bankers and brokers out in the cold, since they generally can offer adjustable-rate loans only at interest rates that enable them to be sold into the secondary markets.
