Borrowers moving to fixed-rate mortgages

The biggest shift in mortgage trends has come from consumers who have been fleeing to the relative safety of fixed-rate loans over the last 15 months. Adjustable-rate mortgages that enjoyed popularity during the housing boom aren't nearly as attractive nowadays, Doug Duncan, chief economist for the Mortgage Bankers Association, said at a conference of the National Association of Real Estate Editors last week. ARMs made up a 41.9 percent share of all mortgage originations in January 2006 but have "plummeted" since to an 18.4 percent share in March 2007. With a shrinking spread between ARM interest rates and fixed rates, borrowers don't have as much of an incentive to bypass a more stable fixed-rate loan.

A survey recently released by TransUnion's TrueCredit.com also showed a year-over-year decrease in the number of those with ARMs. According to the survey, 24 percent of American homeowners with a mortgage said they were concerned about the monthly cost of their loans; 13 percent are worried they'll end up owing more than what their home is currently worth. In addition, 11 percent are worried about a payment increase when their ARMs adjust and seven percent are worried about not being able to refinance at all.

And the tightening of lending standards has not had much impact on mainstream borrowers, economists said at the NAREE conference. Citing statistics from a recent Federal Reserve survey of loan officers, Duncan said that 56 percent of loan officers were tightening their standards for subprime mortgages and 45 percent were tightening standards on nontraditional or Alt-A loans. In the meantime, only about 15 percent were tightening standards for prime borrowers, according to the Fed's report.