Adjustable-rate mortgages, which gained market share steadily for more than a year, have finally begun to show signs of flagging.

In February, adjustables accounted for 53% of the market, down sharply from the peak of 59% registered in January, according to the Federal Housing Finance Board. The decline was across the board, affecting all kinds of institutions, though to varying degrees.

At thrifts, which specialize in adjustables, the drop was just one percentage point, to 80%. Mortgage companies went from 44% to 38%, and commercial banks showed a five-point drop, to 64%.

The decline came as interest rates were still pushing upward. "Among all mortgage loans, the contract rate increased in February by 21 basis points, to 8.01%, and the effective rate, which reflects the amortization rate and charges, increased by 24 basis points to 8.22%," the board said in an announcement.

However, the increase was entirely attributable to adjustables because the average rate on fixed mortgages slipped by 6 basis points while market share rose.

The board's figures do not include government loans or refinancings.

Mark Obrinsky, senior economist at the Federal National Mortgage Association, said, "These figures are for closed loans, so we're looking at decisions made in December or so. The obvious trend we've seen is the sharp narrowing of the spread between 30-year fixed and one-year Treasury ARMs."

That spread, he said, has been about two percentage points recently. At its height, it got as high as 3.5 points in April 1994. "Even as late as November, you were looking at a spread of three full percentage points," Mr. Obrinsky said. The shrinking spread is the major driver in market share, he added.

The market share of ARMs apparently has fallen even further since February. In new figures from the Mortgage Bankers Association of America, applications for conventional ARMs fell 2.3% in the week ended March 17, while fixed-rate applications climbed 8.4%.

The MBA also reported that the spread between 30-year fixed rates and one-year Treasury ARMs stood at just 1.71 points.

The MBA is now including several commercial banks and thrifts in its weekly survey, providing a more representative sampling of all lenders.

The finance board's monthly report provides some interesting insights into regional preferences. Borrowers in the Pittsburgh area, for example, showed much less appetite for ARMs in the fourth quarter of last year than those in most other areas, with the ARMs share standing at 30%. In the San Francisco and Seattle areas, however, ARMs made up 68% and 69%, respectively.

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