WASHINGTON – Under an interim rule from the Department of Housing and Urban Development that implements a 2003 amendment to the National Housing Act, the agency has created a new hybrid adjustable-rate loan that allows lenders to make yearly rate adjustments of up to 2% during the first five years of the loan. It applies to mortgages insured by the Federal Housing Administration that are issued with an adjustable rate feature for the first five years of the loan and convert to a fixed rate for the duration of the term. The interim rule is effective April 28. FHA currently insures five-year ARMs that permit yearly rate adjustments of a maximum 1%.

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