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Monday, February 14, 2011

Adjustable rate mortgages are back

This is a mortgage product is really unhealthy for the mortgage industry.  Unless you are getting a loan on a house with a lot equity or loan is far below your qualifying income limits, this is an awl product.
After accounting for nearly 70% of all mortgages issued during the boom, ARMs vanished during the bust, totaling just 3% of the market in 2009. Now they make up 5% of all mortgages issued, and Freddie Mac predicts 10% by December.
Behind the comeback is a simple fact: ARMs are a great bargain right now. The most common ARM loan currently has a rate of 3.5% compared to 5% for a 30-year fixed-rate mortgage.
"For anyone with a high likelihood of moving soon, the 5/1 is a great product," said Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association. "It's a well understood product too; there's not a lot of danger with it."
Banks are explaining these new ARMs and are structured differently.
The 5/1 is an entirely different animal, experts says. Unlike the toxic ARMs, these products are issued to borrowers with high credit scores, making substantial down payments and with assets, debt and income carefully underwritten before approval.
Rosenbaum said he's always featured the 5/1 ARM as the product of choice unless the clients tell him they're planning to live in the home for 15 or 20 years.
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