Lenders have been rushing to originate and close adjustable-rate Veterans Administration mortgages for the last few weeks, and overall originations in the sector figure to show a bulge for the period.
The reason: Congress seems determined, for budgetary purposes, not to renew the ARMs program, which expired over the weekend. That in turn will mean a sharp drop in the supply of Ginnie Mae adjustables for the secondary market, since a quarter to a third of the loans going into Ginnie Mae adjustables are Veterans Administration mortgages.
So lenders put on a sprint to close lots of Veterans Administration adjustables in September in order to be able to issue and trade the Ginnies in October, industry observers say. The Department of Housing and Urban Development, which administers the loans, also told lenders it would be flexible in its definition of loan approvals. It said lenders could approve loans based on information on standard applications and verify the data later.
That should lead to a flurry of Ginnie Mae ARMs being issued this month, observers believe, followed by a drought next month.
Nobody was surprised that the program was allowed to expire as lawmakers deal with weightier budget issues. But the latest word is that reinstatement of the program is by no means guaranteed.
Burton Wood, senior staff vice president for legislation at the Mortgage Bankers Association, says that at the last minute, the Congressional Budget Office estimated the cost of the program at $36 million a year, or $9 million for an expected three-month extension. This sum is not accounted for in Congress' appropriations bills, Mr. Wood said. The money represents the cost of covering losses from mortgage defaults.
The figure came as a surprise because the office had estimated last year that the program would have no budget impact.
Industry observers said the impact on the market for Ginnie Maes - Government National Mortgage Association securities - could be substantial and that prices were already retreating last week.
Jonathan Gray, a securities analyst who follows mortgage companies, said the end of the ARMs program would benefit mortgage insurers and the housing finance agencies, who are likely to get that business instead.
