Some Lenders Price Adjustables Below 5% in Bid for Borrowers

Some lenders have lowered the initial rates on their adjustable-rate mortgages to less than 5% - a level that could revive consumer demand for the loans.

Following Federal Reserve action to ease credit, lenders were offering one-year adjustables this week at an average of 6.41%, down 18 basis points from two weeks ago, according to preliminary survey results from HSH Associates, Butler, N.J.

The mortgage unit of First Union Corp. and several other lenders are offering the loans at 4.95%.

"Five percent may be the magic barrier" to lure consumers to adjustables, said HSH vice president Paul Havemann. For months, consumers have been shunning the loans for fixed-rate models, which are now offered at about 8.75%.

Larry Dew, a senior vice president at First Union Mortgage, said the low rates on adjustables are indeed catching people's eye.

"We've seen an increase in inquiries into ARMs, and we're beginning to see more applications," he said.

The First Union product features up-front "points" of 2% to 3%, slightly higher than normal, and a cap of two percentage points on annual adjustments. Mr. Dew said the company prices the loans to break even when selling them into the secondary market. The company then earns fees servicing the loans.

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