First, the 3 and 5 normally means no rate change for the first 3 or 5 years. They are usually abbreviated as 3/1 or 5/1 as the rate then changes every 1 year after the 3 or 5 years.
The lenders want an ARM that adjusts at the end of year 1, then stays unchanged for 2 or 4 years, then begins an annual rate change cycle. Those are not 3/1 or 5/1 loans. Maybe 1/2/1 and 1/4/1 loans.
But I think those abbreviations would imply a maximum rate change of 1% the first rate change. I have seen an abbreviation of 5/1/5 meaning a 5/1 ARM with a maximum first adjustment of 5% (followed by the "normal" 2% per change maximum).
If they think your customers are willing to have a rate change at the end of year 1, why not just offer a 1-year ARM with a rate change every year?