Adjustable-rate mortgages (ARMs) often get more attention when rates climb, but don’t fool yourself: their actual footprint in the U.S. housing market remains modest.
Since a Zero Hedge tweet saying that ARM loans now make up 41% of mortgages held by U.S. banks went viral on Sunday night, the mortgage community has been abuzz with confusion. HousingWire Lead Analyst Logan Mohtashami addressed the rumors in этот эпизод of the HousingWire Daily podcast on Monday.
“That tweet set off a firestorm,” Mohtashami said.
The reality? “If you look at the purchase application data, whenever rates go up, the ARM percentages do pick up, but they’re like never above 10%, where in 2002 to 2005 that thing rose up. But the debt, the mortgage growth volumes, are so low that if you really want to use a per-capita basis, it’s really low,” he said. “There’s actually no mathematical way to have 41% of all the mortgages in America to be ARMs.”
Data backs him up. A Federal Reserve Bank of St. Louis white paper released on Aug. 7 confirmed that more than 90% of U.S. mortgages are fixed-rate loans, unlike countries such as Sweden and Canada, where ARMs or short-term products dominate.
“Zero Hedge presents a consistently negative outlook — doom porn,” Mohtashami said. “I’m fairly certain that the 41% of adjustable-rate mortgage (ARM) loans relates to multifamily lending. However, like many doomsday narratives, they failed to mention this detail — likely because focusing only on residential single-family lending would not be as sensational.
Другой отчет, this one from the Dallas Fed, notes that “most residential mortgages in the U.S. have 30-year fixed-rate terms, a unique feature of the U.S. housing finance market.”
ARMs are gaining traction though
Still, ARMs are gaining traction. According to the Ассоциация ипотечных банкиров (MBA), ARM applications rose 85% year over year in the week ending Aug. 22, but that still only represented 8.4% of all applications.
Lower ARM rates are attractive since the average РУКА rate came in at 6.19% that week, below the 30-year fixed mortgage rate of 6.86%. These loans typically lock in a lower rate for an initial period — such as five years on a 5/1 ARM — before adjusting based on a market index, which means payments can rise or fall over time.
In addition, Mohtashami said that today’s ARMs look very different from those tied to exotic loan structures during the housing bubble. In addition, borrowers now have to qualify for the adjusted rate, not just the lower initial rate, so there is less risk in today’s ARM loans than in the past.
“Back in the run-up from 2022 to 2005, you could see the ARM percentages were rising, except the real problem was the ARMs percentages were going with exotic loan debt structures and guidelines being very poor.”
With short-term rates edging lower and long-term rates staying elevated, Mohtashami expects ARM growth to continue — but within a far smaller share of the overall market than the buzz might suggest.
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