ARMS are back — and agents should be part of the conversation 

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The views expressed in this column are solely those of the author.

Adjustable-rate mortgages (ARMs) — once blamed for their role in the 2008 housing crash — are staging a comeback. And this time, they may deserve a second look.

ARMs accounted for 9.6% of all mortgage applications in the week ending April 11, 2025, according to the Mortgage Bankers Association — the highest share since November 2023.

ARM activity hovered near historic lows for more than a decade after the financial crisis. Between 2010 and 2020, ARMs rarely accounted for more than 4-5% of weekly mortgage applications, and sometimes dropped below 2%. April's numbers signal a shift in consumer behavior — and reveal a gap in how the industry is discussing lending options with clients.

If ARMs are going to help address affordability, real estate agents must be part of the conversation.

How ARMs got a bad rep

In the early 2000s, ARMs — especially option ARMs — were at the center of the subprime mortgage boom, with Wall Street the driving force behind their rise. These loans gave borrowers the ability to choose from multiple payment options, including dangerously low "minimum payments" that didn't even cover the interest due. That created negative amortization, where the loan balance grew over time instead of shrinking — and in many cases outpaced the home's market appreciation.

While many lenders marketed these loans aggressively to borrowers, including those with limited financial literacy and/or poor credit, the real fuel came from investors. Wall Street banks eagerly bundled these high-risk mortgages into mortgage-backed securities and collateralized debt obligations, reaping profits while obscuring the underlying risk. The demand for these securities incentivized lenders to keep issuing toxic loans, often without fully verifying income or borrowers' ability to repay.

When home prices began to fall and interest rates reset upward, borrowers were slammed with payment shocks, which triggered a wave of defaults. The house of cards collapsed, helping to ignite the global financial crisis.

Today, those products are gone. Under post-crisis regulations like the Consumer Financial Protection Bureau's Qualified Mortgage rule, lenders can't issue loans with negative amortization or unchecked interest-only features in most cases. Option ARMs, as we knew them, are a relic of the past.

What's driving today's ARMs surge?

One word: affordability.

Home prices spiked exponentially during the Covid-19 pandemic, and sale prices remain high. More recently, the 30-year fixed-rate mortgage has hovered near 7% — and many buyers are struggling to make the numbers work.

ARMs offer significantly lower introductory rates. For example, the average rate on a 5/1 ARM in April was around 5.93%, more than a full percentage point lower than fixed alternatives. That difference translates into substantial savings.

ARMs are now governed by clear safeguards that eliminate risks from 15-20 years ago. Equally important is how much the underwriting process has evolved. Borrowers nowadays must demonstrate solid credit, verifiable income and the ability to repay — criteria that ensure ARMs are going to buyers who can afford them and understand how they work.

Agents: You can't sit this one out

Despite how much ARMs have changed, the stigma remains. That's why agents need to be proactive. They don't need to explain the mechanics of an ARM — that's still the loan officer's role — but they can broaden the conversation by suggesting something like, "Before we rule anything out, you may want to ask your lender about adjustable-rate options. Today's ARMs are much safer — and in some cases, they can make a big difference in monthly cost."

These nudges matter. Many buyers work with lenders after narrowing down their search or falling in love with a home, at which point sticker shock can derail everything. Agents who are fluent in financing options — or who partner with mortgage pros who are — can help clients make smarter, less stressful decisions.

A smarter tool for a new market

ARMs aren't for everyone, but they're not the boogeyman they once were. Used appropriately, ARMs offer real advantages for:

• Buyers planning to move or refinance within 5-10 years

• Dual-income households expecting future income growth

• Move-up buyers squeezed by high prices and rates

• First-time buyers eager to stop spending on rent

In a market defined by limited inventory and stretched affordability, we shouldn't ignore useful tools just because they were once misused. When properly structured and carefully matched to the right borrower, ARMs can expand access to homeownership in meaningful ways. The opportunity now isn't to forget what happened — it's to get smarter about how we move forward.

Coby Hakalir has been a leader in the mortgage industry for almost three decades. He currently leads the mortgage banking and mortgage tech division for T3 Sixty, one of real estate's most respected management consultancies, and resides in Northern California. (Note: Real Estate News is an editorially independent division of T3 Sixty.)