ARMs, government loans are the hottest things in mortgage

More than 7% of all mortgage applications last week were for ARM products — far above the normal baseline of 3% to 5%, Fratantoni said. When looking at dollar volume, ARMs represented about 20% of all applications, he said.

Jumbo ARM products in particular are in demand. Attendees at the conference said that most borrowers will shave at least 50 basis points off what they’d be paying on a conventional conforming mortgage (which are currently priced at about 7%).

“It feels like the right moment for this product,” said Jeana Curro, who leads agency MBS research at Bank of America.

Speakers at the conference said they’ve also seen an increase in 2-1 buydowns as a way to combat higher rates. And there has been a move away from Fannie Mae and Freddie Mac products and toward offerings from the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA).

“You have to expand your offerings,” said Scott Buchta, senior managing director at Brean Capital LLC. “What’s interesting on the govie side is, you’ve got different servicing issues. You’ve got to look at advances and things like that.

“One of the big reasons we saw a jump on the govie side was they lowered the MIP (mortgage insurance premium). You’ve lowered the MIP; you’re making that mortgage insurance for that high-LTV loan cheaper. You’re also allowing high DTIs, and that’s a reason the FICOs (credit score requirements) went up. It was a more affordable mortgage.”

Homebuilders now have about 500,000 homes on the market, and their financing arms are another potential source of relief. Many builders are offering sub-6% mortgages because they’re vertically integrated.

“Builders are doing a lot more of these buydown loans, so they’re able to sacrifice a little on the loan because they can make up for it on the home price,” Curro said. “A traditional lender doesn’t have that flexibility.”