Download or read book A Farewell to ARMs? Three Regimes of Adjustable Rate Mortgages written by Frank P. Stafford and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Adjustable rate mortgages (ARMs) made a dramatic entry into the U.S. mortgage market subsequent to the passage of the GARN - St. Germain Depository Institutions Reform Act of 1982. By the mid 1990's over 20 percent of first mortgages were adjustable and were used across a wide range of urban market types. Going forward to 2007 the percent of families with an ARM as a first mortgage had declined to 11% and the use of ARM's was often then described as a tool for affordability - since the rates are commonly lower than for a fixed rate mortgage for a given repayment risk class of borrower. By 2013 the percent of ARMs as a first mortgage had fallen still further to just under 9%, and the use of a second mortgage had fallen as well. From the supply side the longer run attractiveness of ARMs was reduced by extensive securitization, allowing lenders to avoid correlated risk in local housing markets. Moreover, with the overall decline in mortgage rates in the context of zero lower bound conditions and low expected inflation, the spread between fixed and adjustable rates narrowed, making the 'affordability' component to ARM far less significant, though this dimension appears to continue to apply to African-American families Favorable economic conditions induce a demand for mortgages, especially by higher risk borrowers, and transactions occur at higher rates. A changing composition of the mortgage market emerges with a diverse set of borrowers actively using ARMs. Data from the Panel Study of Income Dynamics (PSID) for 1996, 2007 and 2013 are used to study borrowing decisions. Panel analysis confirms effects of education, non-housing wealth, expected duration at the current residence, and early financial experience in reliance on ARM mortgages.