Shunning of Adjustable Mortgages By Investors May Raise Home Costs
NEW YORK -- In the perennial pursuit of the American dream -- an affordable home -- home buyers have been snapping up adjustable-rate mortgages.</br></br>But just as ardently, investors are shying away from securities backed by adjustable-rate mortgages, or ARMs. From the investors' point of view, the home buyers are getting too good a deal.</br></br>And that could mean bad news down the line for home buyers. While consumers are already being forced to bend somewhat, mortgage market participants say they may have to accept a harsher jolt: higher interest rates and less restrictive interest-rate "caps," or limits.</br></br>Adjustable-rate mortgages account for about two-thirds of all new mortgages and are credited with having sheltered housing from the higher interest rates that have prevailed in the capital markets. Securities firms made a fortune turning fixed-rate mortgages into securities and selling them to investors, and in the process they helped bail out hard-pressed thrifts and other mortgage lenders. Now they would like to do the same with adjustable-rate mortgages.</br></br>At the moment, success seems remote. Investors say adjustable-rate mortgages simply aren't all that adjustable. Most of those available limit the yearly rate adjustments to 1% to 2%, and set a lifetime, or maximum, cap on total increases at five to 7.5 percentage points. But swings in interest rates can be far greater.