Freddie Drops ARM Fee Level.(Freddie Macs adjustable rate mortgage)

In a move that makes it easier to originate adjustable-rate mortgages, Freddie Mac has reduced the servicing spread for all ARM products from 0.375% down to 0.25%. The lower minimum servicing spread gives lenders more flexibility when selling ARM and balloon/reset products, the company said.

The cutting of the minimum servicing spread will have a positive impact on ARM originations. The 12.5 basis point reduction will help to make ARM rates even more competitive because it is "an extra one-eighth in servicing costs [servicers] don't have to collect," said Dave Stevens, senior vice president of single family lending.

Even as mortgage rates remain at record or near-record low levels, there has been an increase in the number of ARM loans sold in the secondary market to Freddie Mac.

As a result, there have been other changes made to Freddie Mac's Single Family Seller/Servicer guide that makes it easier to sell ARMs indexed to the London interbank offered rate (Libor) to the company.

Freddie Mac has seen "incredible growth" in the number of ARMs being sold to it, Mr. Stevens noted. For the week ended March 26, approximately 25% of its volume was ARM loans.

There are a number of reasons why borrowers are attracted to ARMs. Even though the March 25 Primary Mortgage Market Survey found the average for the 30-year fixed to be at 5.40%, start rates for ARMs are even lower, he said. The survey tracks the one-year Treasury indexed ARM and that loan had a start rate of 3.36%, the lowest it has ever been since Freddie Mac started the PMMS.

The over 200 basis point difference in the two rates means ...