PUBLIC LAW 107-330—DEC. 6, 2002 116 STAT. 2825 SEC. 303. AUTHORITY TO GUARANTEE HYBRID ADJUSTABLE RATE MORTGAGES. (a) Two-YEAR DEMONSTRATION PROJECT TO GUARANTEE CER- TAIN ADJUSTABLE RATE MORTGAGES.— Chapter 37 is amended by inserting after section 3707 the following new section: "§ 3707A. Hybrid adjustable rate mortgages "(a) The Secretary shall carry out a demonstration project under this section during fiscal years 2004 and 2005 for the purpose of guaranteeing loans in a manner similar to the manner in which the Secretary of Housing and Urban Development insures adjustable rate mortgages under section 251 of the National Housing Act in accordance with the provisions of this section with respect to hybrid adjustable rate mortgages described in subsection (b). "(b) Adjustable rate mortgages that are guaranteed under this section shall be adjustable rate mortgages (commonly referred to as 'hybrid adjustable rate mortgages') having interest rate adjustment provisions that— "(1) specify an initial rate of interest that is fixed for a period of not less than the first three years of the mortgage term; "(2) provide for an initial adjustment in the rate of interest by the mortgagee at the end of the period described in paragraph (1); and "(3) comply in such initial adjustment, and any subsequent adjustment, with subsection (c). "(c) Interest rate adjustment provisions of a mortgage guaranteed under this section shall— "(1) correspond to a specified national interest rate index approved by the Secretary, information on which is readily accessible to mortgagors from generally available published sources; "(2) be made by adjusting the monthly payment on an annual basis; "(3) be limited, with respect to any single annual interest rate adjustment, to a msiximum increase or decrease of 1 percentage point; and "(4) be limited, over the term of the mortgage, to a max- ^ imum increase of 5 percentage points above the initial contract interest rate. "(d) The Secretary shall promulgate underwriting standards Standards, for loans guaranteed under this section, taking into account— "(1) the status of the interest rate index referred to in subsection (c)(1) and available at the time an underwriting decision is made, regardless of the actual initial rate offered by the lender; "(2) the maximum and likely amounts of increases in mortgage payments that the loans would require; "(3) the underwriting standards applicable to adjustable rate mortgages insured under title II of the National Housing Act; and "(4) such other factors as the Secretary finds appropriate. "(e) The Secretary shall require that the mortgagee make available to the mortgagor, at the time of loan application, a written explanation of the features of the adjustable rate mortgage.
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