Ginnie Mae says it is expecting to see a boost in securitizations of hybrid adjustable-rate mortgages in July now that Federal Housing Administration lenders are originating 5/1 hybrids with interest rate caps that are acceptable to lenders and investors.In April, Ginnie securitized $655 million 3/1 hybrid ARMs, but only $16 million in 5/1 hybrids. The 5/1 product had a 1-percentage-point cap on the annual interest rate adjustment, and very few lenders are originating that product. Late last year, Congress raised the cap to 2 percentage points with a 6-percentage point lifetime cap. "The 2/6 caps on the five-year will make it a much more interesting product for investors and for consumers," said Ginnie Mae vice president Ted Foster. "I think you will see a take-off in overall production in the five-year." Meanwhile, the Department of Veterans Affairs is seeking a legislative fix for its 5/1 hybrid ARM loans. While the VA hybrid loan allows for an initial 2-percentage-point increase, it is capped at 1 percentage point in subsequent years. The VA wants that changed to 2 percentage points. Mr. Foster said he expects the FHA to establish the market for government-guaranteed 5/1 hybrids by the time the VA introduces a competitive product.

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