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5 things to know about adjustable rate mortgages

Salahuddin said one segment of the lending industry where ARMs can be priced differently is depositories. This is because of the history of the product.

In the early 1980s, the thrift industry was dealing with a mismatch in the duration of assets and liabilities that threatened their financial stability. Therefore, ARM products went on stage in 1982 as part of Garn-St. Act of Germain. That law included the Alternative Mortgage Transaction Parity Act, which preempted state laws that only allowed FRMs to be created.

From there, thrifts began producing ARMs to keep them on balance to close the gap, and it continues today.

As a result, while non-banks can offer ARMs, Salahuddin expected most of the activity mentioned in LendingTree’s survey to come from banks because they may value them differently. LendingTree does not keep data about who makes an offer, a company spokesperson said.

This was confirmed by another non-bank lender who said that he and other mortgage bankers produce only a single digit share of ARMs.

Meanwhile, some depositories are eating up ARMs

“Last quarter, we saw a shift from stationary to ARMs, with more than 50% of our production coming from intermediate ARMs,” said Ellen Steinfeld, Berkshire Bank’s executive vice president and head of consumer lending.

At Navy Federal Credit Union, ARM applications are up 55% year-over-year, but that number is skewed downward because half of their volume is for Veterans Affairs-guaranteed mortgages, which are fixed-rate products only. rate, said Kevin Parker, vice president of mortgage origination in the field.

Given the affordability issues that are putting pressure on the housing market, an ARM may be the only choice for some borrowers, they may not want an ARM, he continued.

“Often it also comes down to the borrower’s individual circumstances in terms of whether or not they plan to stay in the home for a long period of time,” Parker said. If a borrower ultimately plans to move within a fixed-rate period, they will end up with a hybrid ARM over a conventional FRM.

In terms of credit quality, Parker noted that Navy Federal has some of the lowest default rates in the industry and, if anything, “we’re actually trying to find ways that we can be more aggressive in the underwriting box.”

Navy Federal’s customer demographics fit the profile of a typical depository, as its charter allows for more than just active membership

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