Home prices peaked in mid-2006 before starting a plunge that stripped a third off the value of properties in the biggest real estate bust since the Great Depression.
Mortgage qualification standards have since become the tightest in at least two decades, with lenders often requiring 20 percent down payments. The average FICO score of an ARM borrower is about 771 on a measure that ranges from 300 to 850, said Guy Cecala, publisher of Inside Mortgage Finance. That’s better than the 755 average FICO score for fixed-rate borrowers, he said.
The biggest ARM lenders are Wells Fargo & Co., based in San Francisco, JPMorgan Chase & Co. in New York, PHH Corp. in Mount Laurel, New Jersey, and Bank of America Corp. based in Charlotte, North Carolina, according to Cecala.
Prices Rising
Home prices also are rising at the fastest pace since the boom, with values up 2.4 percent in the second quarter from the previous three months, according to Zillow Inc., the biggest second-quarter gain since 2004.
New lending regulations stemming from 2010’s Dodd-Frank Act effective in January include an “ability to repay” measure that requires lender to make sure fixed-rate and ARM borrowers have the ability to make good on their payments.
Since the rules for ARMs usually allow borrowers to qualify on the loan’s initial rate, some may not be able to afford their mortgages after the fixed period ends.
For now, ARMs are helping borrowers lower interest payments and reach for more expensive homes after financing costs rose.
In the last week of June, the dollar value represented by ARM applications accounted for 16 percent of mortgage requests, the highest share since July 2008, two months before Lehman Brothers Holdings Inc. collapsed, according to Mortgage Bankers Association in Washington.
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