Salient to Investors:

ARM applications in late June rose to the highest level since 2008.

Cameron Findlay at Discover Financial Service said we’ve seen a shift in the way people look at adjustable-rate mortgages: they are still skeptical but the sticker shock of fixed rates is making them look for alternatives.

Keith Gumbinger at said when you give unqualified buyers a rate they won’t be able to afford based solely on the presumption that home prices will always go up, it’s not going to end well.

Mortgage qualification standards have become the tightest in at least two decades, with lenders often requiring 20 percent down payments. Guy Cecala at Inside Mortgage Finance said the average FICO score of an ARM borrower is 771 on a scale of 300 to 850, and better than the 755 average FICO score for fixed-rate borrowers.

Zillow said home prices rose 2.4 percent in Q2 from Q1, the biggest Q2 gain since 2004.

The MBA said the dollar value of ARM applications were 16 percent of mortgage requests in the last week of June, the highest share since July 2008.

Erin Lantz at Zillow said home prices probably will continue to rise nationally, but it’s more difficult to predict by region.

Henry Savage at PMC Mortgage said ARM applicants assume their income will be higher by the end of the loan’s fixed period so are playing golf in the dark. Savage said the dilemma of choosing a fixed rate over a bigger and better house with an ARM is the same dilemma we saw before the housing crash.

A 1 percent change in fixed rates means applicants who before qualified for a $400,000 house may now have to look at a $350,000 house. The loan rate on a typical ARM could go as high as 8.5 percent.

Jay Westbrook at the University of Texas said if Jamie Dimon can’t predict the future rate environment with assurance in 5 years, neither can homebuyers.

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