Ginnie Expects More FHA Hybrids

Ginnie Mae is expecting to see a boost in securitizations of hybrid adjustable-rate mortgages in July now that FHA lenders are originating a competitive 5/1 hybrid product.

Federal Housing Administration 5/1 hybrids had a one-percentage point cap on the annual interest rate adjustment, which was not acceptable to most lenders and investors.

In April, Ginnie securitized $655 million in 3/1 hybrid ARMs but only $16 million in 5/1 hybrids.

Late last year, Congress raised the cap to two percentage points with a six-percentage point lifetime cap. The FHA started endorsing these 5/1 hybrids with the 2/6 caps on April 28.

"The 2/6 caps on the five-year will make it a much more interesting product for investors and for consumers. I think you will see a takeoff in overall production in the five-year hybrid," said Ginnie Mae vice president Ted Foster.

Meanwhile, the Department of Veterans Affairs has run into problems with its 5/1 hybrid ARMs and it is seeking a legislative fix.

The VA hybrid allows for an initial two-percentage point increase, but it is capped at one percentage point in subsequent years. VA wants that changed to two percentage points.

Mr. Foster expects the FHA will establish the market for government-guaranteed 5/1 hybrids by the time VA introduces a competitive product. (c) 2005 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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