We have offered ARMs for years and approx 40% of our mortgage production in 2007 were ARMs.  I attribute our success to our originators knowledge and the fact that we offer them on 100 LTVs, with PMI of course.  You'll be more successful with a discounted 5 or 7 year than with a 3 year in this market.  

Considering the current environment over adjustable rate mortgages, I don't advice promoting such products that adjust in it's first five years.   Housing counselors are very fearful of these types of adjustables, and regulatory agencies are concerned over the "teaser" initial rates offered on conforming and non-conforming products.  We have actually stopped offering all ARM products that adjust before the 10nth anniversary.  We developed a 10/1 ARM that has gotten rave reviews from housing agencies and applicants.  

Is it worth offering such products at discounted initial rates when most borrowers refinance on or before adjustments?   We make such loans in anticipation of getting higher yields down the road....my research indicates that borrowers to not keep these types of loans once the rate begins to adjust annually.  

I agree with Tim on the opportunity for greater success with a significantly discounted 5/1.  We use a spreadsheet that outlines the savings over 5-6 years with our 5/1 2/2/5 product that helps us counsel people.  We also point out that people who move every 5-7 years spend far too much money on fixed rate products.  Email me and I'll send the spread sheet.  lroberts@ufcu.org

In a previous credit union, we had excellent results in the 3/1, 5/1 ARM products.  We would begin by marketing to the large segment of our membership that were correctional officers in 2-3 year assignments.  Knowing that they would be relocating in a pre-determined timeframe, these loans made perfect sense.  We also would market to young professionals, doctors, lawyers, engineers, in the beginning stages of their careers.  The lower interest rates gave them the cushion they needed to get comfortable with their first home loan and have the advantage of lower payments during their lower salary years.  We did many homebuyer's seminars geared to this segment of members and non-members.  We worked with the alumni association of several local universities and business schools.

I hope this gives you a little information.  Good luck.  You shouldn't have too much trouble making this a successful program.

Sue

I encourage my LO's to offer a "proper" fixed rate mortgage that accomplishes all the members needs rather than an ARM.  

When an ARM adjusts for the first time, the member is usually looking to get out of it.  This requires new refi costs and often they are not only looking here.  We run the risk of losing that loan AND we gave them a lower rate loan which will never provide market rate income.

ARM's are good for only a limited portion of our membership.

Russ, Harborstone Credit Union

We do not offer teaser rates for our ARM's.  What we did was create a 3/3 ARM (also based on the 1 yr t-bill).  Members love the product as a matter of fact in the last 3 years approximately 30 percent of our real estate loan portfolio has been booked under this product.  The member views it as a series of 3 year loans.  And with people refinancing their mortgage for gas and dinner on Friday nights, they view the 3/3 as an excellent product.  Members are actually calling our originators and asking for the 3/3 ARM.  Hope this helps.