Mortgage Finance (The 1980s): ARMs, Deregulation, Monetary Policy Shift, Economic Reform, and Scandal

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*This post is a part of a series of posts I have written. To start from the beginning, click [shorturl.at/hsF48].

Introduced in the late 1970s and early 1980s, adjustable-rate mortgages (ARMs) became popular among both lenders and borrowers. At one time (according to HSH Associates) the largest publisher of mortgage and consumer loan information, ARMs comprised as much as 75% of all mortgages originated.

As long as there was an upwardly sloped yield curve, the short-term interest rates or indices used to reset the rate on adjustable-rate mortgages (ARMs) were much lower than the rates off of which fixed-rate loans were benchmarked.

At this point, fixed-rate mortgages (FRMs) had become prohibitively expensive for many households, even those with two wage earners. Adjustable-rate mortgages lenders often qualify new borrowers for a loan based on the initial coupon payment.

They allowed many first-time buyers to purchase a home they could not otherwise afford.