Figure 1: Agency & Non-Agency

While there has been significant innovation on the origination side of the ARM market, the secondary market remained somewhat static until 2002 when the volume of agency ARM issuance increased by 164% from $47 billion in 2001 to 124 billion in 2002. Figure 2 shows annual issuance of agency ARMs from 1996 to 2002. Most of the growth in agency ARM issuance in 2002 can be attributed to hybrid ARMs. Of $124 billion of agency ARM MBS, 83% or $103 billion were hybrid ARMs in 2002. Growth in hybrids is expected to continue and surpass levels in 2002, particularly given that Ginnie Mae recently announced a new program that will securitize FHA's 3/1, 5/1, 7/1, 10/1 hybrid ARMs and the VA's 3/1 and 5/1 hybrid ARMs as of October 1, 2003. Earlier this year, Fannie Mae announced a new pooling program for 5/1 hybrid arms that established uniform pool-level characteristics in order to promote greater liquidity in the secondary market. >>>