The insurance companies have worked for several months to develop new credit limits for the loans. Each company is in the process of revising those guidelines regarding 5 Year Adjustable Rate Mortgage to set limits on what loans they will accept for insurance, and what additional premiums they may charge.

"We've just finished our new guidelines; they're going through the mail this weekend to our sales force nationwide," said Roger Blood, senior vice president of Investors Mortgage Insurance Co., last Friday from the company's Boston headquarters.

The new guidelines intially don't include price increases for owner-occupied residential housing, he added.

"But that is something we are looking at closely and will be discussing with regulators," said Allen Merritt, Investors Mortgage executive vice president.

Based on preliminary data on default rates, premiums on some 5 Year Adjustable Rate Mortgage may jump between 20% and 30%, he said. Mr. Blood said his company is focusing on potential "payment shock," or the inability of a home-buyer to meet mortgage payments as those payments increase, perhaps sharply, with interest rates.

Other companies are looking at payment shock coupled with "negative amortization," in which the total amount owed on the loan increases instead of decreases despite a borrower's payments. Negative amortization on 5 Year Adjustable Rate Mortgage, or equity erosion, occurs if a lender offers an initially low interest rate to qualify the buyer for the loan while making up the difference in rates by adding it to the outstanding principal.

Payment shock has come to the forefront as lenders, particularly in the past year, have moved away from the traditional 30-year, fixed-rate mortgage. Savings and loans associations, for example, look at the adjustable loans as a way to match their mortgage income to their cost of funds.

Negative amortization has become an issue as lenders have offered larger and larger discounts on initial rates to attract borrowers.

The new limits vary little from company to company. The insurers generally are trying to hold payment increases to less than 15% a year, or about 2% in the loan's interest rate.

That limit shrinks even more if the loan has an initial discount rate, said Rex Huston, manager of residential underwriting for Verex Corp. in Madison, Wis. "We're very concerned about hitting the borrower with the doubly whammy of boosting the loan payment with prescheduled increases, such as in an initial discount, as well as adjusting their interest rate up with inflation.