Loan-choice research has generally examined the determinants of fixed-rate
mortgage (FRM) versus ARM lending in the single-family conventional market.
Little attention has been paid to the significant differences in ARM lendi
ng between the GSE conforming and jumbo markets, as well as differences in
the FHA market. For example, the ARM share of jumbo originations is general
ly two to three times that of the conforming market. This article extends p
ast analysis by examining the determinants of ARM market share in the conve
ntional conforming, jumbo, and FHA markets. Mortgage-pricing variables and
the slope of the Treasury yield curve, a proxy for expectations of the time
path of ARM indexes, were generally found to be significant. Further, the
geographic shift in FHA lending toward the California market since 1992 was
found to explain a significant part of the increase in the ARM share of FH
A originations during the mid-1990s.