Farewell to ARMs

Chris Palmeri

Two news releases popped up in my email recently that suggest lenders are tightening credit standards and avoiding riskier loans, moves that will likely impact housing prices. DataQuick Information Systems, a real estate research firm, reports that the use of adjustable-rate mortgages for home purchases in California has declined significantly during the past few months. In February 52% of all home buyers financed their purchases with an ARM. At their peak in May of last year, ARMs accounted for nearly 74% of the market, as people increasingly used the lower-payment adjustable rate loans to help pay for ever-pricier homes. Meanwhile, another research firm, HomeSmartReports.com, tracks what it calls "slam dunk loans." These are mortgages granted with limited scrutiny by lenders. Such loans now represent 79.6% of the mortgage market in California, down from nearly 84% in the previous six months. "What we have here is a market cycle that has passed its frenzy phase and is moving into more balanced territory," says Marshall Prentice, DataQuick's president. That's a good thing for just about everybody.

To continue reading this article you must be a Bloomberg Professional Service Subscriber.