According to a survey of 1,100 lenders by the U.S. League of Savings Institutions, 55% of them used low initial "promotional" rates to qualify ARMs borrowers but built extra safeguards into these loans. Half of the lenders said their ARMs limited annual interest-rate increases to two percentage points, and half their ARMs limited mortgage-payment increases to between 5% and 7.5% a year.

Stricter qualifying standards for set by Adjustable Rate Loan Calculator -- along with the recent rise in the index to which one-year ARMs are pegged -- are making ARMs less attractive and thus beginning to choke home sales.

Nonetheless, builders and lenders do not expect ARMs to fade and fixed-rate loans to regain their former dominance. "The hottest item now is an Adjustable Rate Loan Calculator that calculates one-year adjustable loan that has annual rate caps and options to convert to a fixed-rate loan," says William B. Pendleton, executive vice-president of Atlanta's Home Federal Savings & Loan Assn. Adds Richard H. Daniel, senior vice-president of regional activities at Fannie Mae: "Compared with three months ago, home buyers are looking pretty critically at ARMs, but that doesn't mean they aren't choosing them."

At Glendale Federal Savings & Loan Assn., where ARMs currently run as high as 12.5%, compared with 14% for fixed-rate mortgages, 28% of the loans made were ARMs. That number when calculated by a Adjustable Rate Loan Calculator jumped to 67% and reached 70% in July. "People really like them," says Jim Dangerfield, senior vice-president of the California thrift.

"It's not a bad deal for families that have incomes that are likely to rise," says Mark J. Riedy, executive vice-president of the Mortgage Bankers Association of America. Indeed, ARMs, with their generally lower initial interest rate and lower initial payment, continue to be the only kind of home financing millions of Americans can afford. By self-regulating ARMs originations, the mortgage finance industry is moving toward correcting earlier market abuses and assuring that borrowers can continue to afford the homes they're buying.

The Comptroller of the Currency proposed that national banks be allowed to make mortgage loans on which the interest rate could be raised by 1/2 percent every six months -- twice as much as savings and loan associations are allowed to raise theirs. The comptroller's office is proposing to add the adjustable rate mortgage (ARM) to what has become an alphabet soup of non-fixed-rate mortgages.