After accounting for nearly 70% of all mortgages issued during the boom, ARMs vanished during the bust, totaling just 3% of the market in 2009. Now they make up 5% of all mortgages issued, and Freddie Mac predicts 10% by December.Behind the comeback is a simple fact: ARMs are a great bargain right now.

The most common ARM loan currently has a rate of 3.5% compared to 5% for a 30-year fixed-rate mortgage."For anyone with a high likelihood of moving soon, the 5/1 is a great product," said Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association. "It's a well understood product too; there's not a lot of danger with it."Well, because fixed-rate mortgages are seen as safer because they carry the same rate over life of the loan. Borrowers always know what their payment will be.But with ARMs, interest rates change over time. [Read the full article]

The rate on the 30-year conforming mortgage has risen to a recent 5.1% from 4.2% last October (see chart, right), tagging along behind an even larger rise in the yield on the 10-year Treasury note over that period.The jump in the mortgage rate has added around $50 to the monthly tab on a 30-year, fixed-rate mortgage on a median-price house ($170,000 or so) purchased with 20% down, estimates Paul Dales of Capital Economics in Toronto.Those figures could yet rise further in coming weeks. Many observers expect the yield on the 10-year Treasury rise to 4% or above from a recent 3.6%, amid questions about whether U.S. policymakers have the guts to rein in the galloping U.S. budget deficit. Higher Treasury rates generally translate into higher mortgage rates.Yet houses are cheap enough that mortgage rates could even rise further without drastically damaging the affordability picture, Dales says. [Read the full article]

President Obama's plan to limit two popular deductions for wealthy taxpayers will hit a wall of resistance from entrenched special interests.The president once again proposed in his budget to curtail high-income earners' tax deduction for mortgage interest payments and charitable contributions.Under his proposal, taxpayers in the 33% and 35% tax brackets would only be able to deduct their contributions and mortgage interest payments at the 28% rate. It would affect those with taxable income of $250,000 and up and bring in $321 billion over 10 years, according to the White House.The Obama administration, as well as several tax and deficit commissions, have called for limiting or eliminating the deductions in the past. But the proposals have gone nowhere and the same outcome is expected this year.Still, the real estate industry and non-profit sector are not taking any chances. [Read the full article]