Is the Housing Market Ready for an Increase in Adjustable-Rate Mortgages?
Adjustable-rate mortgages (ARMs) are making a comeback in the housing market. In the fourth quarter of 2013, ARMs comprised 31 percent of mortgages in the $417,001-to-$1 million range and 61 percent of mortgages more than $1 million, both increases from the previous year. As a main factor in the housing crash, should we be worrying about the increase in ARMs?
According to Don Frommeyer, CRMS, President of NAMB (The Association of Mortgage Professionals), the surge in ARMs will not lead to the downfall of the housing market. “The issue surrounding ARMs and the housing crisis was mostly due to the fact that subprime borrowers were being approved for ARMs they weren’t qualified for. They stretched the loan and their buying power as far as they could, and the result was often defaulting when the market turned as housing values dropped, but interest rates jumped,” says Frommeyer. “This time around, lenders are targeting a new market and are focusing on those with strong credit who are taking out larger mortgages.”
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Frommeyer explains that stricter regulations for mortgages across the board will be beneficial for ARMs as well. “Since the housing crisis, lenders have realized that subprime borrowers are not suited for ARMs. By increasing the standards for ARMs, the lenders and borrowers are decreasing their risk,” continues Frommeyer.
