Following a viral tweet from Zero Hedge claiming that ARM loans constitute 41% of U.S. bank-held mortgages, the mortgage industry has been abuzz with confusion. HousingWire Lead Analyst Logan Mohtashami addressed the speculation in a recent episode of the HousingWire Daily podcast, debunking the rumors.
Mohtashami commented, “That tweet caused quite a stir.” He went on to explain, “When you look at the purchase application data, ARM percentages do increase when rates go up, but they typically remain below 10%. There is no way mathematically that 41% of all mortgages in the U.S. are ARMs.”
Supporting Mohtashami’s stance, a Federal Reserve Bank of St. Louis white paper released on Aug. 7 confirmed that over 90% of U.S. mortgages are fixed-rate loans, unlike other countries where ARMs dominate.
Mohtashami also criticized Zero Hedge for its negative outlook, labeling it as “doom porn.” He suggested that the 41% ARM loans claim likely pertains to multifamily lending, a detail omitted to sensationalize the narrative.
Furthermore, a report from the Dallas Fed highlighted that most U.S. residential mortgages are 30-year fixed-rate loans, a distinctive feature of the U.S. housing market.
ARMs are gaining traction though
Despite the prevalence of fixed-rate mortgages, ARM applications rose by 85% year over year, according to the Mortgage Bankers Association (MBA). However, these applications only accounted for 8.4% of all applications.
Despite the appeal of lower ARM rates, with an average rate of 6.19% compared to the 6.86% 30-year fixed rate, these loans lock in a lower rate for an initial period before adjusting based on market indexes.
Mohtashami added that modern ARMs differ significantly from those during the housing bubble, with borrowers now required to qualify for the adjusted rate, minimizing risk compared to the past.
He concluded, “While ARM growth is expected to continue due to lower short-term rates and elevated long-term rates, it will likely remain a smaller segment of the market than the hype suggests.”