The Return of the ARM sounds like a bad horror movie that you’d see on really late night TV, but it’s actually a growing movement in mortgage lending. According to a recent article on the American Banker website, mortgage lenders are pushing adjustable rate mortgages as refinance volume drops.
Adjustable rate mortgage applications account for a mere 6% of total application volume, but that’s double what it was at the beginning of the year, and a long way off from the pre-mortgage crisis amount of 32%. As the spreads between a traditional 30 year fixed rate loan and adjustable rate mortgage widen, it actually makes sense for some borrowers to look at ARMs as an option (note: that’s not an option ARM!).
Now I’m not advocating that we start doing a ton of ARM lending. Nor am I even advocating that we use the standard ARM products available on the secondary market. I am suggesting that your Credit Union look to hybrid ARMs, designed for the balance sheet, that balance the needs of the member with the needs of the Credit Union. Several large Credit Unions have done this successfully over the years, including State Employees Credit Union (NC) with their 2/2 ARM or Pentagon Federal Credit Union (VA) with their 5/5 ARM.
1. Few borrowers live in their home for 30 years so why do they need a mortgage that locks in their rate for that long. Most Americans stay their home for somewhere between 5 and 10 years. Perhaps what these folks really need is a loan with an interest rate lock for that period.continue reading »