FIXED RATE OR FLOATING? HYBRID ARMS GIVE AN INVESTOR BOTH FEATURES What’s your choice for the term of the decade so far (that is, other than COVID-19)? In the last three years, a number of expressions have come into fashion, some of which have been worn out, used out of context, and deemed to be a blight on our vocabulary by linguists. I’m sorry to say these may be around for a while. Here are a few: • Virtual • Social distancing • Pivot • PPP • Zoom (which I’ve noticed has become a verb as well) • Supply chain • Hybrid Let’s stick with “hybrid” for a few minutes. This has gained popularity in several circles. Hybrid cars, powered by both fuel and electricity, now account for over 5% of new vehicle sales, and all major auto manufacturers are ramping up their capacity. Hybrid education programs, which have both in-person and virtual components, are likely to be with us for some time. And, in the investment world, hybrid bonds can offer an attractive risk/reward profile for community banks. Not a ‘20s Innovation Adjustable-rate mortgages (ARMs) have been around since the 1980s, and portfolio managers have coveted these investments that “wrap” the loans into a liquid security. ARM pools backed by Fannie Mae, Freddie Mac, and Ginnie Mae (GNMA) deliver all the normal benefits of mortgage-backed securities (MBSs) and more. In addition to the monthly cash flow, ARMs also can help control interest rate risk for banks that are exposed to rising rates. “In addition to the monthly cash flow, ARMs also can help control interest rate risk for banks that are exposed to rising rates.” BY JIM REBER, PRESIDENT AND CEO, ICBA SECURITIES Endorsed Partner cbak.com 12 In Touch
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