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FHA Adjusts Cap on Hybrid ARM Rate Changes.(annual interest rate adjustment)(forecasts of lenders)
Washington -- Federal Housing Administration lenders have a chance to become real players in the hybrid adjustable-rate mortgage market now that HUD has finally modified its 5/1 hybrid regulation.
The Department of Housing and Urban Development issued an interim final rule last month that raises the cap on the annual interest rate adjustment from 100 basis points to 200 bps.
This change allows the FHA to insure hybrid ARMs with an initial interest rate adjustment of 200 basis points after the first five years of the loan. Over the life of the loan, the interest rate cannot go up by more than 600 bps.
Hybrid ARMs are very popular in the conventional market. They offer borrowers an initial fixed interest rate for three or five years before converting to a one-year adjustable rate.
The 100-bp cap on the FHA 3/1 has been fairly successful in the marketplace, but lenders and their investors shied away from the FHA 5/1 hybrids.
Since the start of fiscal year 2005 (Oct. 1), FHA lenders have originated $962.5 million in three-year hybrids, but only $40.5 million in five-year hybrids.
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Source: HighBeam Research, FHA Adjusts Cap on Hybrid ARM Rate Changes.(annual interest rate...