Mortgage

Newrez markets ARM merchandise as a part of a brand new value dynamic

A fresh surge in marketing for adjustable rate mortgages at Newrez underscores a shift in the relative pricing of the loans that has made them more attractive in certain niches.

Newrez sells ARMs that are pegged for five, seven, or ten years before adapting to niches that include the non-QM and jumbo markets. It also offers them through multiple credit channels.

A change in the relationship between short-term and long-term rates has made ARMs more attractive, noted Jeff Gravelle, chief production officer at Newrez. Although the current market typically favors fixed rate loans, the relative discount for five-year products has increased.

"The move … definitely helped us to re-prioritize ARMs … after a year of historically low interest rates," Gravelle said in an email.

As of March, the average rate for a mainstream five-year-old ARM has been low compared to the standard 30-year product, according to data from Freddie Mac's weekly survey. Last week, the average 30-year FRM rate was 2.78%, down from 2.49% for a five-year hybrid. In contrast, the average rate for a 30 year old FRM at the end of February was 2.97% versus 2.99% for a five year ARM.

These rates are more in line with mainstream credit and may be higher for the more specialized products Newrez offers, but the relative attractiveness of ARM pricing is in both markets.

Newrez markets ARMs in both the aforementioned non-QM niche and the jumbo market for loans outside of the compliant limit of government sponsored companies. ARMs are more common in these niches than in the mainstream market, where their application share is in the single digits. The company has also updated its compliant ARM product set in line with the GSE's index change.

Certainly, consumers still find the prevailing 30-year fixed-rate mortgage generally more attractive because it keeps interest rates close to historic lows for an extended period of time. However, for borrowers looking to move in five to ten years, ARM prices can look cheap. Ultimately, consumers have to weigh up the monthly savings benefits. the ability to set a long-term interest rate, Gravelle said.

Newrez offers its ARM products through its joint ventures with real estate agents, wholesalers, correspondents, and online and call center channels.

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