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Second Half 2007 Mortgage Originations Show Preference for Fixed Rate Products Over ARMs

July 29, 2008

WASHINGTON, D.C. -The demand for fixed rate mortgage products increased in the second half of 2007 according to the Mortgage Bankers Association's (MBA) Mortgage Originations Survey released today. This demand was largely due to a substantial decline in long term interest rates and the narrowed spread between the adjustable rate mortgage (ARM) and fixed mortgage rates. Tightened lending standards for subprime and nontraditional loans, where ARM loans were historically more popular, also reduced ARM originations.

In addition, as lending standards became more stringent, the origination of mortgages with deferred amortization ("interest only" or "IO") decreased.

Key findings from the survey (percentages are based on dollar volume of originated loans, unless noted otherwise):

  • For first mortgages, fixed-rate loans (excluding IOs) accounted for 63.6 percent of loans in the second half of 2007 compared to 53.4 percent in the first half of 2007.
  • In the second half of 2007, 79.0 percent of all origination dollars were for prime loans compared to 70.0 percent in the first half of 2007, 7.5 percent were non-prime (10.4 percent in the first half of 2007), and 7.8 percent were Alt-A (15.8 percent in the first half of 2007).
  • The government insured share of originations increased (FHA and VA), as FHA loans replaced subprime and other nontraditional loans. In the second half of 2007, 5.7 percent of origination dollars were government insured loans, compared with 3.8 percent in the first half of 2007.
  • First-time homebuyer purchases represented 30.2 percent of the number of purchase loans in the second half of 2007, a slight decrease from 32.6 percent in the first half of 2007. The average loan amount for first time purchases increased to $215,185, compared to an average loan amount of $202,265 in the first half of 2007.

Survey participation included mortgage bankers, commercial banks and thrifts and many of the top HMDA originators. Information collected in this survey includes detailed origination data on various mortgage characteristics including loan type, product type, amortization type, first-time homebuyers and property type.

Source: MBA

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