ARMs Down but Not Out, Analyst Suggests

While the popularity of adjustable-rate mortgages has declined sharply, they still account for one in seven mortgages and are in no danger of being dropped from lenders' arsenals, according to Jon Holm, president of Holm Publications, Milwaukee.

Adjustables accounted for just 14% of loan originations in February, according to the Federal Housing Finance Board. That share was the lowest since the board began tracking origination shares in 1983. Since February, the share has rebounded a bit. But in February 1984, ARMs accounted for half of loan volume, the board's figures show.

In explaining what was making ARMs unattractive, analysts pointed to the narrow spread between fixed and variable rates on the yield curve.

Mr. Holm said that despite the thin spreads, there are always borrowers who will need ARMs' lower starting rates in order to be able to afford a mortgage. He added that some borrowers use ARM teaser rates as a way to keep payments low when they intend to sell their home in just a few years.

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