FHA to Launch Hybrid ARM Program

The Federal Housing Administration is prepared to start endorsing hybrid adjustable-rate mortgages, and the final rule to implement the new loan program is expected to be issued in the next few days.But the final rule does not include a fix for the 5/1 hybrid ARM that lenders wanted, according to sources. Congress approved the FHA hybrid ARM program over two years ago. It allows the FHA to 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. The final rule includes a one-percentage-point cap on the interest rate adjustment for the 5/1 hybrid, which lenders argue is unworkable. In November, Congress passed a technical provision to increase the cap to two percentage points, but it was too late to include in the final rule. It appears that the Department of Housing and Urban Development has to go through a new rulemaking process to fix the five-year hybrid.