WASHINGTON, D.C. (May 4, 2005) - Adjustable-rate mortgages (ARMs) and interest-only products accounted for 63 percent of mortgage originations in the second-half originations of 2004, according to the Mortgage Bankers Association's (MBA's) Single-Family Mortgage Activity Survey released today. The MBA survey covers mortgage activity during the third and fourth quarters of 2004.

The MBA survey, which represents about half of the mortgages originated last year, showed that the dollar volume of first-mortgage originations declined 9 percent from the first half to the second half of 2004. While the dollar volume of refinances fell in the second half, the dollar volume of purchase originations rose, resulting in the purchase share of originations increasing from 41 percent in the first half to 51 percent in the second half of 2004.

"Consumers shift to ARMs when long-term rates rise and when the spread between long- and short-term rates widens. This happens at the end of every refinance boom, so it's not a surprise that ARM share has risen over the last year," said Doug Duncan, MBA's chief economist and senior vice president. "This interest rate cycle is unusual in that the increase in ARMs has occurred with a much smaller increase in rates than in past cycles. One reason is that house-price appreciation leading up to this ARM cycle was much stronger than in previous ones, creating affordability constraints that led a number of buyers to seek lower payments with ARMs."

Key findings of the survey include the following:

• Nonprime and alternative-A loans increased their market share, capturing nearly one-third of the mortgage market in the third and fourth quarters of 2004.
• ARM originations were split almost evenly between traditional ARMs (53 percent) and hybrid ARMs (47 percent). Traditional ARMs are mortgages where the interest rate is fixed for an initial period of less than three years and then adjusts periodically based on a specified index, whereas hybrid ARMs have an initial fixed period of three years or longer.
• For first-mortgage originations, the loan-to-value (LTV) averaged almost 76 percent and the borrowers averaged a FICO score of 683.
• The dollar volume of second-mortgage production increased 17 percent from the first half to the second half of 2004.
• Piggyback loans - second mortgages closed simultaneously with a first mortgage - accounted for 66 percent of all second-mortgage loans originated in the second half, but only 60 percent of the total dollar volume.
  
  

The survey included more than 90 companies, including the top 12 loan originators and 25 of the top 30 loan originators. Based on internal market estimates, sample coverage included more than 50 percent of total market originations of first and second mortgages. This survey collected detailed information on origination of first and second mortgages - including for the first time data on hybrid ARMs, alt-A mortgages, FICO scores, LTV distributions, and piggyback and stand-alone second-home loans. Whenever possible, comparisons were made to highlight the trends from the first half to the second half. All trends were based on data from repeater companies - companies that reported data for both the first and second halves of 2004. Survey results from the MBA study are only available to participants.

**SPECIAL NOTES**

The survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.