FHA Issues Hybrid ARM Rule

The Federal Housing Administration has issued its hybrid adjustable-rate mortgage rule that will allow FHA lenders to offer this loan product 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. However, the final rule does not include a fix for the 5/1 hybrid that lenders wanted. The final rule follows the hybrid ARM legislation passed two years ago and establishes a one-percentage-point cap on rate adjustments for the 5/1 hybrid. Lenders maintain that this adjustment cap is too thin and that it will hinder the 5/1 hybrid's acceptance in the market. Industry groups succeeded in getting Congress to pass a technical correction late last year, but it was too late to include a two-percentage-point adjustment in the final rule. "HUD will consider changing the adjustment caps in a future rulemaking proceeding," HUD says in the final rule.