Adjustable-rate mortgages are obviously a hot item these days, even in the dwindling market for refinancings. New figures from the Federal Home Loan Mortgage Corp. show that people who refinanced in the second quarter chose adjustables far more frequently than in the first quarter or at any time last year.
Mortgage rates climbed sharply in the second quarter, and many borrowers seeking lower payments and budget flexibility found that the best choices were ARMs, said Vassilis Lekkas, senior economist at Freddie Mac.
Some 14% of people refinancing their 30-year fixed mortgages switched into adjustables in the first quarter, equaling the highest figure ever recorded by Freddie Mac. In the first quarter, the figure was just 6%. For all of 1993, the figure was also 6%.
People refinancing their 15-year fixed-rate loans chose adjustables just 3% of the time last year and in the first quarter, but the figure jumped to 7% in the second quarter. And even those holding ARMs chose to refinance into adjustables more frequently, from 35% last year to 44% in the first quarter of this year and 46% in the second quarter.
The Freddie figures, however, are probably only a pale reflection of the national trend.
Thrifts, who normally hold loans for their own investment portfolios, have been dominating the adjustables market in recent months, and relatively few ARMs are flowing through Fannie Mac and Freddie Mac.
Sam Lyons, a senior vice president for Great Western Financial Corp; said the thrift was still doing about 37% of its volume in refinancings, a much higher figure than for most mortgage banks.
Rate Difference Is Almost 5%
"Most of the reds, I assume, are going into adjustables," he said, adding that the wide spread between ARMs and fixed was the key driving force. "Today, we offer fixed-rate loans at 8.55%, and the ARM that we do most is at 3.60%," he said.
The mortgage banks, though, are not sitting still. They have been introducing a welter of adjustable models in an effort to keep the business flowing.
And they have been trying to line up thrifts and other investors to buy the ARMs. "I have more mortgage banking friends than ever," said Mr. Lyons.
A new wrinkle is the rapid spread of COFI adjustables, socalled because they are indexed to thrifts' average cost of funds in the 11th Home Loan Bank District, dominated by California.
Many major California mortgage banks are now offering COFI loans, including Countrywide Funding Corp., Pasadena; American Residential Mortgage Corp., La Jolla, and North American Mortgage Co., Santa Rosa.
The problem with COFI loans, though, is that they can't usually be sold to Fannie Mae or Freddie Mac. Some of the mortgage banks have found thrifts to buy the mortgages, but Wall Street appears to be a developing outlet.