Congress Passes VA Hybrid Fix

Congress has passed a veterans' benefits bill that includes a fix for VA hybrid adjustable-rate mortgages and opens the door for their inclusion in Ginnie Mae mortgage-backed securities.The veterans bill (S. 1235) gives the secretary of the Department of Veterans Affairs discretion in setting the interest rate adjustment on VA-guaranteed 5/1 hybrids and eliminates the current 100-basis-point cap. In all likelihood, the secretary will set the interest rate increase at a maximum of 200 bps each year, which is the industry standard, according to Keith Pedigo, director of the VA loan guarantee program. The Federal Housing Administration hybrid program also allows a 200-bp adjustment for 5/1, 7/1, and 10/1 hybrids with a 600-bp lifetime cap. Once the president signs S. 1235, Ginnie Mae will be able to pool VA and FHA hybrids together for better execution. This change should stimulate more originators to make VA hybrids, Mr. Pedigo said.

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