In the early 1980s, the savings industry was faced with an asset-liability duration mismatch that threatened its financial stability. So ARM products entered the scene in 1982 as part of the Garn-St. Germain Act. This law included the Alternative Mortgage Transaction Parity Act, which preceded state laws only allowing the creation of FRMs.
From there, savings began to create ARMs to hold on their balance sheets to address the mismatch, and this continues to this day.
As a result, while non-banks may offer ARMs, Salahuddin expected much of the action cited in the LendingTree survey to come from banks, as they may price them differently. LendingTree does not keep data on who makes the offer, a company spokesperson said.
This was confirmed by another non-bank lender, who said he and, anecdotally, other mortgage bankers only produced a single-digit share of ARMs.
Meanwhile, some custodians are gorging themselves on ARMs
“Last quarter we saw a shift from fixed ARMs to ARMs, with more than 50% of our production being intermediate ARMs,” said Ellen Steinfeld, executive vice president and head of consumer lending for Berkshire Bank. .
At the Navy Federal Credit Union, ARM applications are up 55% from a year ago, but that number is skewed downward because half of its volume comes from veteran-backed mortgages, which don’t are only fixed-rate products, said Kevin Parker, vice president of field mortgage originations.
Given the affordability issues pressing the housing market, an ARM might be the only choice for some borrowers they might not want an ARM, he continued.
“Often it also depends on the borrower’s individual situation, whether they plan to stay home for a long time or not,” Parker said. If the borrower definitely plans to move during the fixed rate period, they will find themselves ahead with hybrid ARMs compared to a normal 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 to be more aggressive in the subscription box”.
Navy Federal’s customer demographics fit the profile of a typical custodian, since its charter not only allows it to have active members