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TROUBLE LOOMING AS ARM INCREASES KICK IN.

Byline: GREGORY J. WILCOX

Over the next two years, $2 trillion worth of adjustable-rate mortgages are going to cause their holders some discomfort.

This is a really big number. A two followed by a dozen zeros. There is enough distance between the two and the final zero for trouble to hide.

This is the side of the fence on which some market watchers, most of then engaged in economics and research, sit.

On the other side of the fence are the glass-is-still-half-full-ers.

They see another refinance opportunity over the next two years.

Last week I received an e-mail from the Web site The Mortgage Market Guide.

It carried the headline ``Nowhere to Run ... No Where To Hide ... ARM Yourself for a Huge Opportunity.''

Here, in part, is the narrative.

``Thought the refinancing run was over for good? Don't look now, but a huge opportunity lies immediately in front of you. Home loan rates continue to rise ... ARM yourself and make your move before your competition does.''

It touted a conference call Thursday at which one of the featured speakers was Barry Habib, the guide's chief executive officer, who would give loan originators advice on how to survive in this changing market.

It cost $99.95 to participate in the call.

The agenda included a re-evaluation script designed for originators to use when contacting their ARM clients. It also offered a Quick Step Media Guide, a ``step-by-step plan for contacting the media.''

I tried but couldn't reach Habib on Friday.

He's right about one thing: There is a scramble to get out of adjustable-rate products as they rise in cost and right now that presents a challenge.

Not much relief is available. Yet.

For example, a day before Habib's conference call, the Washington, D.C.-based Mortgage Bankers Association released its weekly report showing that home loan and refinance activity fell 6.2 percent from the week before and 23 percent from a year ago.

The refinance share of mortgage activity increased to 35.7 percent of total applications from 35 percent the previous week. And the adjustable- rate mortgage (ARM) share of activity increased to 30.5 percent of total applications from 29.9 percent the previous week.

That's the highest since the week ending Jan, 27, 2006.

ARMs are not as seductive as they were a few years ago, though.

The average interest rate for a 30-year fixed-rate mortgage decreased to 6.61 percent from 6.66 percent a week earlier. The rate for a one-year ARM decreased to 6.02 percent from 6.07 percent.

A day later, mortgage giant Freddie Mac followed up with its weekly report that showed the one-year adjustable mortgage increasing an annual 33.3 percent.

Keith T. Gumbinger, vice president at rate tracker HSH Associates in Pompton Plains, N.J., said its holders of adjustable product have the jitters.

``Refinance activity has not completely disappeared because many borrowers are moving out of at least some of the ARMs they selected over the last couple of years.''

And one thing the lending industry displayed during the market boom is the ability to quickly roll out new products to meet market conditions.

The same thing is likely to happen again.

``Some form of response will come. I'm not certain what it will be, but my guess is it will be some form of streamlined refinancing opportunities,'' Gumbinger said.

Altruism won't have anything to do with it, either. Lenders want to make money. It's their business.

Suzanne Pyburn, a broker at Long Beach-based Mortgage Loan Specialists and president of the Southern Los Angeles County Chapter of the California Association of Mortgage Brokers, said holders of adjustable products need to be proactive.

She urges them to have a broker review their loan and get a sense of their financial situation when their rate resets.

``It's a checkup just like when you go see your doctor. Same thing with your mortgage.''

She also recommends visiting www.cambweb.org, the association's Web site. It contains a consumer link to more information.

She suggests visiting the site before sitting down for a mortgage review.

``Go in armed. Don't go in unawares.''

greg.wilcox(at)dailynews.com

(818) 713-3743
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Title Annotation:Business
Publication:Daily News (Los Angeles, CA)
Date:May 28, 2006
Words:698
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