A Farewell to Adjustable-Rate Florida Mortgages

Consumers are shunning adjustable-rate Florida mortgages in droves as rates surged to levels not seen in over six years, data from an industry trade group showed yesterday.

The Mortgage Bankers Association said borrowing costs on 30-year fixed-rate mortgages dropped to the lowest level in weeks, but rates on one-year adjustable-rate mortgages (ARMs) surged to 6.51 percent from 5.84 percent in the week ended Aug. 24, its largest weekly jump on record and highest level since January 2001.

The ARM share of activity decreased to 15.0 percent, down from 18.6 percent the previous week, its lowest level since July 2003 and in stark contrast from where it hovered during the Florida housing market heyday at above 30 percent.

Jim Baird, chief investment strategist at Plante Moran Financial Advisors in Kalamazoo, Michigan, said the decline in ARM share indicates that borrowers are becoming increasingly shrewd about their mortgage options.

“A decline in the adjustable-rate mortgage share of activity would tend to suggest a greater degree of caution on the part of consumers,” he said.

U.S. mortgage applications fell for a second consecutive week, reflecting a drop in demand for home purchase and refinancing loans.

“Another factor is that the comparative difference in rates between adjustable and fixed rate products is significantly diminished making adjustable rate products much less attractive than was the case a few years ago,” he said.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications (USMGM-ECI), which includes both purchase and Florida refinance loans, for the week ended Aug. 24 decreased 4.0 percent to 615.2.

Applications, however, were 10.5 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 0.3 percent to 647.9.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.41 percent, down 0.08 percentage point from the previous week. Also, Florida mortgage rates were above year-ago levels at 6.39 percent. Fixed 15-year mortgage rates averaged 6.10 percent, down from 6.20 percent.

A sharp rise in defaults in the subprime mortgage market, which caters to borrowers with poor credit histories, has caused lenders to tighten requirements, making it difficult for those with weak credit to get a Florida home loan.

“As lending standards continue to tighten up for those seeking to buy or refinance, it’s not surprising that we’ve now seen two straight weeks of declines in mortgage application activity,” said Plante Moran’s Baird.