As rate hikes loom, UWM rolls out jumbo ARMs

Wholesale giant says products will appeal to brokers whose clients don't plan to keep the properties long-term


United Wholesale Mortgage rolled out prime jumbo adjustable-rate mortgage (ARMs) products on Wednesday, signaling that demand for ARMs is growing inside of the broker community.

According to the top-ranked wholesale lender, their prime jumbo ARMs will allow brokers to offer “competitive pricing” on five-, seven- and 10-year adjustable-rate mortgages.

“Independent mortgage brokers now have a competitive option for those borrowers who are likely to move or refinance within a few years,” the Pontiac, Michigan-based lender said in a statement.

UWM added that this product will be beneficial to those who “may be looking for a lower rate on primary, second or investment homes they don’t plan on keeping long-term.”

Although the wholesale lender did not publicly disclose the rate or the terms, Mark Westcott, senior loan officer at CrossCountry Mortgage, told HousingWire that there must be an incentive for borrowers to opt for an ARMs product instead of opting for a 30-year fixed-rate conventional loan.

“Either the rate has to be significantly lower, or the terms have to be more advantageous to qualify,” he said. “If you look at the yield spread between a two-year treasury and 10-year treasury, there’s not that much of a difference. There must be a significant increase in rates for the combination of the index and the margin to make sense to the consumer.”

Westcott noted that in some cases lenders will incentivize borrowers to opt for an adjustable-rate mortgage by requiring a one-year tax return instead of two, or by calculating a borrower’s income in a more flexible manner.

With the Federal Reserve announcing Wednesday that it will begin tapering its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities, it is inevitable that interest rates will climb, making ARMs a more sought-after product, which is likely what UWM is betting on.

Prior to the Fed’s announcement, October saw the average rate on a 30-year-fixed mortgage start climbing by roughly 20 basis points, and some housing economists predict that by the end of 2022, mortgage rates will surpass 4%. That will make ARMs more desirable to borrowers.

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