FHA Will Do Hybrid ARMs

The Department of Housing and Urban Development has issued a final rule that will allow Federal Housing Administration lenders to offer hybrid adjustable-rate mortgages for the first time.

Under the final rule, the FHA can insure loans with a fixed interest rate for three, five, seven and 10 years. After the fixed term expires, the loan converts to a one-year ARM.

Conventional lenders have been offering hybrid ARMs for years and it has been widely accepted in the marketplace.

FHA lenders can start submitting hybrid ARMs for endorsement starting April 9 when the HUD rule goes into effect.

However, HUD was not able to include a fix for the 5/1 hybrid that lenders wanted.

The final rule follows the hybrid ARM legislation passed two years ago that requires a one-percentage-point cap on interest rate adjustments for the 5/1 hybrid.

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