Portfolio lenders keep hoping for higher interest rates so potential borrowers will turn to adjustable-rate mortgages once more. But the little upswing in interest rates over the past two weeks has not stimulated consumer appetite for ARMs to any significant degree, lenders said.

Rates would have to climb significantly higher to change the balance in applications between adjustable-rate and fixed-rate mortgages, they said.

Spike Called Temporary

"Rates are still incredibly affordable," said Christopher J. Sumner, president of Crossland Mortgage Corp., Salt Lake City.

"People seem to think the recent rise in rates was a temporary spike. What are the interest rates that affect people? Clearly in the double digits," said Mr. Sumner.

First Republic Bancorp, based in San Francisco, was an exception. According to Kathrine August, an executive vice president, volume in fixed-rate mortgages had dropped 10% since rates climbed, and customer interest has turned to ARMs.

Thomas C. Brown, president and chief executive officer, Centerbank Mortgage Co., Waterbury, Conn., has not seen such a shift.

He said that most borrowers still want the stable payment schedules of fixed-rate loans. Slow upticks interest rates will not change that, he said.

Mr. Sumner of Crossland says consumers are missing the boat by not snapping up ARMs.

He says consumers don't understand ARMs well enough to appreciate the opportunities.

He said low lifetime caps and generous starting rates added up to a better deal than most think.

The situation in California seems to support Mr. Sumner's view.

In that state, adjustables have all along been more popular that fixed-rate mortgages, largely because of heavy-duty marketing efforts by the big thrifts based there.

At San Francisco-based 1st Nationwide Bank, 40% to 45% of all loans sold are adjustable.

"We want to do ARMs," said Tom Hallman, 1st Nationwide's director of residential lending. "To do that, we have a lot of emphasis on ARMs."

Mr. Hallman says his staff "talks up" ARMs to customers, making sure they understand the benefits.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.