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The mortgage finance system also is equipped with a wide range of alternatives to the standard fixed-rate loan, and adjustable-rate mortgages (ARMs) tied to short-term market indexes have been gaining in stature as the yield structure has steepened. The MBA reports that ARMs accounted for nearly one-fourth of applications for home mortgages in the third week of August, up from 13% of the market when long-term rates bottomed out in June. History shows that the ARM "shock absorber" can provide considerably more cushion to the single-family market if long-term rates should rise more than we currently are projecting.

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