Freddie Mac Releases 28th Annual ARM Survey Results

MCLEAN, Va., Jan. 18, 2012 /PRNewswire/ -- Freddie Mac (OTC: FMCC) today released the results of its 28th Annual Adjustable-Rate Mortgage (ARM) Survey of prime loan offerings, which was conducted January 3 to January 5 of this year. The results show ARM initial-period rates are at historically low levels and hybrid ARMs remain the most common adjustable-rate product in the market. 

News Facts

• Initial-period rates on ARMs were at the lowest levels recorded in the 28-year history of the ARM pricing survey, reflecting, in part, the low levels of the Treasury yields that are used as indexes.
• The 5/1 hybrid ARM continued to be the most popular loan product offered by lenders. Nearly all of the ARM lenders participating in the survey offered such a loan. The next most popular products were the 3/1 and the 7/1 hybrid ARMs. Less than one-half of lenders offered the 1-year adjustable, and only 4 percent of lenders offered a 3/3 ARM, which adjusts once every three years.
• In early January 2012, the interest rate savings for the popular 5/1 hybrid ARM compared to the 30-year fixed-rate mortgage amounted to about 1 percentage point, about the same as during January 2011. 
• There was little difference in the initial interest rate for the 1/1, 3/1 and 5/1 products. Longer-term hybrid products, such as the 7/1 and 10/1 ARMs, were also available from 63 percent and 38 percent of the survey participants, respectively. Because of the long initial fixed-rate period (seven or ten years), the initial interest rates were priced closer to the rate on a 30-year fixed-rate loan for these products.
• Among 121 ARM lenders, 65 percent offered loans tied to constant-maturity Treasuries, down from 71 percent in 2011; the remaining offered products tied to future rates indexed to the London Interbank Offered Rate (LIBOR).  With the onset of the debt crisis in the Eurozone, the 1-year LIBOR rate less the 1-year constant-maturity Treasury yield peaked over the week ending January 6 at over 1 percentage point, compared to around 0.5 percentage points over the same week in 2011. As a result, 1-year LIBOR indexed ARMs may have adjusted up or did not adjust materially down compared with Treasury-indexed ARMs.  The uncertainty over LIBOR movements may have led some current borrowers to avoid LIBOR ARMs.

Visit the following link for the Treasury-Indexed ARM Features in January 2012 table:

http://www.freddiemac.com/news/finance/popup/20120117_arm_survey.html

Quotes:

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

• "Homebuyers have shied away from ARMs, particularly traditional 1-year ARMs, because they are wary of the risk and uncertainty.  The potential for much larger payments if future shorter-term interest rates are significantly higher and the high delinquency rates that borrowers have experienced with ARMs in recent years have led consumers to prefer fixed-rate loans over ARMs. In addition, fixed-rate loans currently are at near historic lows, and initial ARM rates are only slightly lower than fixed-rate loans.
• "Borrowers who have taken out ARMs generally prefer hybrids, because these products include an extended initial period where the interest rate is fixed. ARMs today are financing just over 10 percent of new home-purchase loans. In June 2004, ARMs hit a peak share of 40 percent of the home-purchase market but by early 2009, that share had fallen to just 3 percent, according to the Federal Housing Finance Agency. We are expecting ARMs to gradually gain back some favor with mortgage borrowers rising to a 14 percent share of the home-purchase market in 2012."

Get the latest information from Freddie Mac's Office of the Chief Economist on Twitter:@FreddieMac

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

SOURCE Freddie Mac