The Federal Housing Authority (FHA) is set to launch a hybrid ARM program that would include 3/1s, 5/1s 7/1s and 10/1s. Analysts say that it has little to no current relevance for GNMA fixed-rate relative value as the earliest possible implementation date of the program is September 2003.

Ted Foster, vice president of MBS at Ginnie Mae, said that the specifics of the FHA hybrid program have not been ironed out. "My understanding is that most of the details are worked out except for the 5/1s," said Foster. He explained that it is not yet definite what the cap on the first adjustment would be on this type of hybrid. "So there is still an outstanding question on the underlying collateral," he said. However, he stated that the Veterans Administration (VA) already has a hybrid ARM in place that will be implemented Oct. 1, 2004. The VA will be issuing a 3/1 hybrid.

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