Risk, Price Fears for ARMs At Western Thrifts Abating

WASHINGTON - Concerns about the pricing and risk of adjustable-rate mortgages by the large western thrifts may have been overplayed, according to a top thrift regulator.

"While it's a very competitive market out there, we certainly don't have people doing really stupid things," said John Robinson, director of the west region of the Office of Thrift Supervision.

Mr. Robinson's comments, which came in an interview this week, were much more upbeat than his previous statements on the subject.

Last June, he wrote to many of the nation's largest thrifts, warning that ARM loans with heavily discounted start rates were "unsafe and unsound." The concern was that borrowers would be unable to keep pace with payments, as rates rose.

Now Mr. Robinson believes that ARM pricing has moderated.

And thrifts offering ARMs with extremely low teaser rates are balancing the low rates with origination fees, prepayment penalties, or short adjustment periods, he said.

Still he cautioned that it was "too early to tell," how last year's bumper crop of ARMs would perform.

Mr. Robinson said that his examiners have found "a few cases" where thrifts have stretched the underwriting limits.

But "it is not widespread enough to have caused any alarms to go off," he said.

The loans, most of which are not quite a year old, will not hit their peak delinquency period for another couple of years.

While there were signs of higher delinquencies in the fourth quarter at some thrifts, just as many showed signs that delinquencies were declining, he said.

The most important factor in how these loans will perform, Mr. Robinson said, is the California economy.

"If it gets worse, I guarantee those ARM loans will look bad," he said. "If it gets better, I guarantee they will look good."

Mr. Robinson also said that he is watching the direction of interest rates.

If rates go up, so will monthly ARM payments for consumers. If they go down, consumers will get a break, and the delinquency rate should improve, he said.