Sunday, March 26, 2006

Borrowers Surrender, Lay Down Their ARMs

Link To This Post.

More on frightened borrowers and why some loan "experts" think their fears are foolish ... from the LA Times:
Climbing interest rates have spurred some worried borrowers to dump their short, fixed-period adjustable-rate mortgages for longer-term loans, but experts say fears of a rapidly changing market are overblown.

Borrowers who two or three years ago jumped into hybrid loans (those with low fixed rates for the first three or five years that then convert into adjustable mortgages), are now taking advantage of an infrequent phenomenon — it's happened eight times since 1966 — in which long-term interest rates are lower than short-term ones, said Dan Weiss, a mortgage broker at Toluca Lake-based Golden State Lending Services. That's making fixed-rate 30-year and hybrid 10-year, interest-only loans particularly attractive right now.

In February, 51.9% of all California home buyers used an adjustable-rate mortgage, compared with 63.7% in January and 68.7% in December, according to DataQuick Information Services, a La Jolla-based real estate research firm. The company attributes the drop to the narrowing spread between the cost of an ARM and a fixed-rate mortgage, and the popularity of home-equity loans, among other financial factors.

"A lot of people [with shorter-term mortgages] think they have to get out now or they'll blow it," said L.A.-based Legend Mortgage broker Mitch Ohlbaum. "They want prices locked in so they can put the loan to bed."

— The Boy in the Big Housing Bubble