This is another way the Federal Reserve’s rate hikes are changing markets and behavior.
Adjustable-rate mortgages, which start out with a relatively low rate that jumps after a certain time period, comprised nearly 11% of mortgage applications last week, the highest level since 2008, according to data from the Mortgage Bankers Association.This is another way the Federal Reserve’s rate hikes are changing markets and behaviorUntil recently, 30-year fixed mortgage rates were super low. It didn't make sense to take on a riskier adjustable loan, or ARM.
Back then, many subprime borrowers took out interest-only ARMs with super-low teaser rates that would skyrocket to unaffordable levels. Many couldn't pay and wound up in foreclosure. Regulations and underwriting standards have tightened since then, prohibiting that kind of stuff. Today's ARMs are far less, to put it technically, bonkers. "Very different animals," said Len Kiefer, deputy chief economist at Freddie Mac.now is the 5/6, said Greg McBride, chief financial analyst at Bankrate.com. It's a fixed rate for five years, then adjusts every six months after that.
And those adjustments are subject to caps — like the 2/1/5 that can't increase more than 2 points for the first round, then a max of 1 point after that, and can't go up more than 5 points over the life of the loan. Plus, borrowers taking out ARMs now typically have high incomes and strong credit ratings. They can afford the higher 30-year rates, but prefer the savings on the ARM, he said.to worry if loan standards begin to relax and anyone who can fog a mirror is able to get a mortgage. That is not what is happening now.""Is this just a blip?" wondered Freddie's Kiefer. The move to ARMs could be a last-ditch effort to preserve affordability, he said.
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