• Since the ARM's invention, there has been no period of sustained, steep increase in short-term rates. We won't get away with that forever.

Luxury Connect
Meet the Luxury Leaders | October 19-20 | Beverly Hills

It has been a while since adjustable-rate mortgages (ARMs) were topical.Adjustable-rate mortgages have been a sleepy market ever since the Fed went to zero eight years ago, at about the same time that extensive ARM abuse in the bubble stopped. And their basic structures are far older than the experience of most borrowers today. Where did ARMs come from? Modern ARMs were invented in 1980 to protect banks and savings-and-loans companies (S&Ls) against the hyper-active Paul Volcker-led Fed. Short-term rates then ran way up into the teens, as did the cost of money to banks. Lenders had to have some way to protect themselves by transferring the cost of rising rates to borrowers.Interest rates have fallen ever since, which has distorted the consumer view of ARMs. Since their invent...