FHA Moves Forward on Hybrid Loans

Federal Housing Administration lenders may become real players in the hybrid adjustable rate mortgage market now that HUD is publishing a regulation that loosens the caps on interest rate adjustments. The Department of Housing and Urban Development has sent an interim final rule to the Federal Register that is slotted to be published March 29. The rule raises the cap on interest rate adjustments from 100 basis points to 200 basis points on 5/1, 7/1 and 10/1 hybrids. This change allows FHA to insure 5/1 hybrids with an initial interest rate adjustment of 200 basis points after five years and a 600 basis point adjustment over the life of the loan. The FHA rule goes into effect 30 days after it's published in the Federal Register.