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Apr 04, 2022

Caliber Home Loans, Inc. recently hosted a webinar about adjustable-rate mortgages (ARMs) featuring:

David Schroeder: Caliber Executive VP of Third-Party Originations
Jason Duffy: Principal at Residential Lending
Robert Kuzemka: Caliber Account Executive

Get the full experience of the webinar!
Click to watch the entire webinar, and to download the presentation, click here.

We received a variety of questions from the more than 500 webinar attendees, which Robert has answered below.

Who decides the margin and what is the third number in the 5/1/5 based on?
The lender determines the margin. The third number is the lifetime cap.
If the borrower has to qualify at the fully indexed rate, is that really lower than a fixed-rate mortgage at the end of the day?
No, but it's only for qualifying. Not actual monthly payments.
Can you recast an ARM?
Do you have a good resource for more adjustment scenarios?
Yes. Check in with your Account Executive (AE).
Is pricing worse on an ARM?
No. Normally, it's better as the shorter fixed term is incentivized by the lower rate.
Is the margin set when the rate locks?
Does your high-balance ARM pricing have a no-par rate?
Not currently, but we will look into offering a wider rate spread.
Do you anticipate the ARM rates to get better? Right now, there isn't much of a difference from a 30-year fixed rate.
Yes. I expect the spread between fixed and ARM rates to widen as the market reacts to the Fed working to curtail inflation.
What is the penalty to the buyer for refinancing before the ARM term is up?
There is none. There's no PPP on conventional or regular Jumbo ARMs.
Are borrower qualifications any different for a fixed-rate mortgage compared to an ARM?
Yes. credit score, debt-to-income (DTI) ratios, and loan-to-value (LTV) ratios can vary from fixed-rate loans to ARMs. Your best option is to connect with your AE for the details..
For the shorter ARMs, do we need to add a margin to the initial rate to qualify?
Yes. The shorter-term ARMs qualify at the greater of the fully-indexed rate or note rate +2%. 7/6 and 10/6 ARMs at note rate for LP. DU is greater of fully indexed or note rate and H2O defaults to DU’s calc.
How do closing costs compare with the fixed-rate mortgage?
Costs should be about the same between a fixed and an ARM. Rate buydowns can vary, as can pricing.
Are ARMs offered for Correspondent lenders or just the Broker channel?
All Correspondents and Brokers.
Is there a cap on how much money you can cash out?
Based on occupancy and number of units, but the maximum is 80% LTV.
I'm very green in the ARM rate topic and am wondering if there is a seasoning period after a borrower closes on an ARM rate before they refinance rate/term with a fixed rate.
No, but you should refer to your Broker Agreement on any EPO and get with your AE.
Are you going to bring back interest-only ARMs?
According to David, yes.
Jumbo borrowers are asking for this option. Is it available?
Yes, we offer them.
I am surprised to see the 30-year fixed Sequoia loan go up from 4% to 4.625% in 10 days.
The market has been very volatile.
Are a lot of Loan Officers (LOs) floating their submissions?
I see a good mix between locked and floated submissions.
Just to confirm – you can or cannot pay off debts/take cash out with an ARM?
You can indeed pay off debts and cash out on an ARM. See the matrix and get with your AE for more information.
A hidden benefit of ARMs traditionally has been a built-in "recast". P&I payment is recalculated each time the rate adjusts. That is still the case, correct?
That is correct!
Does Caliber refer the LO that originates the loan back to us when the borrower reaches out for a refi?
Yes, through our Reconnect program.
The full index rate is maxed at 5%. What is the maximum rate for your example?
It depends on what product you’re referring to. I’d suggest getting with your AE for that information and other examples.
Caliber’s spread on agency ARMs is minimal. I don’t see an advantage.
Currently, as David mentioned, there isn’t a huge spread. However, we expect this to change.
What is the last column? Balance paid down?
On slide 15, that’s correct. The two column headers from the right are balance paid down.
You said that rates can change up or down… Do ARMs ever really go down? Can VA Loans be ARMs?
Yes, they do! Contact your AE for more information about VA ARMs.
Many of the buyers in my market have no chance of getting offers accepted, especially FHA and VA buyers. How long does a borrower have to wait to get a cash-out refinance, let's say into a fixed or ARM product?
Great question. Delayed financing scenario right here. You can read up on delayed financing exception requirements on the Fannie Mae site.
All ARMs I am seeing now are six-month adjustment periods rather than the one year that they had in the past. Is there a reason that the terms were switched to adjust earlier?
This stems from the switch from the LIBOR to the SOFR index. As more lenders make this switch as a way of standardizing interest rates, you'll see more 7/6 ARMs. The interest rate for the first seven years is fixed; after that, your rate is readjusted every six months. The fixed rate period on a 7/6 typically features a lower interest rate than fixed-rate loans.