23 September 2010
Bordignon says that about 65% of the broker channel volume are represented by the ARM (the rest are fixed). “It’s interesting that historically it’s the other way around: 65% are fixed, and the rest – ARM”.
George Hugh, Vice President, Lending Sales at ING Direct doesn’t believe we’re going back to prime – 1%: “It may seem today that prime – 1% is coming back, but I don’t think so. It’s too risky now”.
For example at prime – 0.65%, variable-rate spread is about 108 bps (1.08%) It’s already under the 120bps (1.2%) required earlier. And from that spread the lenders have to pay securitization costs, liquidity premiums, hedging costs, underwriting costs and a lot more.
In case of prime – 1%, these spreads would be unsustainable.
Bordignon thinks some lenders might, probably, offer short-term prime – 1.00% promotions someday, but it won’t become everyday product. During the next few quarters consumers may shift more into fixed-rate mortgages, he believes. “The prime will increase and we will go back to historical standards – in the end the demand for ARMs will go down”.