VA Bill Contains Hybrid ARM Fix

The Senate Veterans Affairs Committee has passed a veterans' benefits bill (S. 1235) that contains a fix for the Department of Veterans Affairs hybrid adjustable-rate mortgage program.Currently, VA 5/1 hybrid ARMs cannot be pooled and securitized with Federal Housing Administration 5/1 hybrids because of a 100-basis-point cap on interest rate adjustments. The initial interest rate adjustment on a VA-guaranteed 5/1 hybrid can go up by 200 bps, but subsequent adjustments are capped at 100 bps. As a result, FHA and VA 5/1 hybrids cannot be pooled together and placed in Ginnie Mae mortgage-backed securities. The Senate bill allows subsequent interest rate adjustments to increase by 200 bps. This correction applies to 5/1, 7/1, and 10/1 hybrids and makes VA hybrids consistent with FHA hybrids.