HUD RELEASES REPORT CONFIRMING ARMS LIMIT WILL BE REACHED BEFORE END OF FISCAL YEAR, SETS CUT-OFF DATE

WASHINGTON - The Department of Housing and Urban Development announced today that the Federal Housing Administration is close to reaching the statutory limit on the number of adjustable rate mortgages (ARMs) it can insure this fiscal year, and will not insure ARMs with application dates later than April 2 or with closing dates later than April 30.

As of March 15, the Department had insured 168,462 ARMs, approximately 71 percent of its fiscal year 1998 limit.

The Department commissioned a report by Standard & Poor's DRI to provide estimates of the number of ARMs applications currently being processed by FHA lenders, and a date when FHA would likely reach the cap. According to the report, which also was released today, there could be up to 50,000 additional ARM endorsements during April and May.

Copies of the report have been delivered to the Senate Banking, Housing and Urban Affairs Committee, and the House Banking and Financial Services Committee, which are the committees that approve HUD's programs. The cap on the number of adjustable rate mortgages that can be insured by FHA each fiscal year can only be lifted by Congress.

Based on the current rate at which HUD is endorsing ARMs, the Department projects that adjustable rate mortgage applications signed by prospective borrowers on or before April 3 and that close prior to May 1 will fall within the statutory limit and receive FHA insurance.

Under the National Housing Act, the number of ARMs the FHA can insure each fiscal year cannot exceed 30 percent of the total number of mortgages it insured the previous year. During fiscal year 1997, FHA insured 790,359 mortgages, setting a cap of 237,107 ARMs that can be insured this fiscal year.

After the statutory cap has been reached, HUD will return ineligible ARMs endorsement applications to lenders, who can then resubmit them at the beginning of fiscal year 1999.

This is the second consecutive year HUD has reached its statutory limit on ARMs. Last year the limit was reached in late August. Because of the backlog of loans that accumulated while FHA could not insure additional ARMs, an unusually high number of ARMs were approved for FHA insurance during the first month of this fiscal year.

ARMs are an important tool for helping first-time homebuyers and underserved borrowers achieve homeownership. Lower beginning interest rates increase the affordability of mortgage financing by enabling borrowers to more easily meet FHA's payment-to-income qualifying ratios.