[Congressional Record Volume 148, Number 46 (Tuesday, April 23, 2002)]
[Senate]
[Pages S3169-S3170]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SPECTER (for himself and Mr. Rockefeller):
  S. 2230. A bill to amend title 38, United States Code, to make 
permanent the authority of the Secretary of Veterans Affairs to 
guarantee adjustable rate mortgages, to authorize the guarantee of 
hybrid adjustable rate mortgages, and for other purposes; to the 
Committee on Veterans' Affairs.
  Mr. SPECTER. Mr. President, I have sought recognition today to 
comment briefly on legislation I am introducing which will help many 
veterans achieve the dream of home ownership. The legislation would 
permit the Department of Veterans Affairs, VA, to guarantee adjustable 
rate mortgage, ARM, loans as part of its loan guaranty program. The 
legislation would also give VA the authority to guarantee a relatively 
new type of ARM financing, ``hybird'' ARM loans. Hybrid ARM's provide a 
fixed rate of interest during the first three to ten years of the loan, 
and an annual interest rate adjustment thereafter. Both conventional 
ARM's and hybrid ARM's would expand the financing options available to 
veterans, options which are currently available under Federal Housing 
Administration, FHA, insured loan programs for non-veterans.
  The VA loan guaranty benefit has helped millions of active duty 
service members and veterans to purchase homes without a down payment. 
VA currently provides a guaranty only on loans applying a fixed rate of 
interest over a thirty year period, so-called ``30-year conventional'' 
loans. While a 30-year conventional loan makes sense for some home 
buyers, it does not provide the flexibility others need given differing 
personal circumstances. ARM loans and hybrid ARM loans provide that 
flexibility.
  Traditional ARM and hybrid ARM loans provide flexibility by offering 
lower rates of interest during an initial period, one year for 
traditional ARM's and three, five, seven, or ten years for hybrid 
ARM's, as compared to 30-year conventional rates. Lower rates translate 
into lower monthly payments, often making a home more affordable and 
permitting home buyers to qualify for loans. In addition, hybrid ARM's 
have another attractive aspect in that they provide the security of a 
lower interest rate for a fixed number of years prior to the annual 
adjustment period. Service members and veterans who know beforehand 
they will be moving out of their homes in a set number of years may 
find hybrid ARM's make financial sense given their circumstances. While 
home buyers must be prudent in choosing to use ARM financing, 
foreclosing the option to veterans, in my estimation, smacks of 
paternalism. ARM loans are insured by FHA; my legislation would simply 
apply to the VA loan guaranty program a principle already embraced by 
FHA and the commercial lending sector: one type of financing does not 
meet all home buyer needs.

  This bill would also extend certain protections to veterans who use 
ARM financing. During an annual interest rate adjustment period, rates 
would not be permitted to increase more than one percent. Further, 
interest rates would not be permitted to exceed more than five 
percentage points above the initial fixed rate. These are standards 
that have evolved in the marketplace over the past 20 years; veterans, 
like other home purchasers, should gain the benefit of these 
protections

[[Page S3170]]

  The VA supports the addition of an ARM option to its loan guaranty 
program. It administered a successful, and popular, ARM pilot program 
in the mid 1990's; the program was so popular that ARM's constituted up 
to 21 percent in 1995, of VA-guaranteed home loans. Unfortunately,the 
program was not reauthorized by Congress. The time has arrived to 
rectify that oversight. I ask my colleagues for their support.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2230

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. AUTHORITY OF SECRETARY OF VETERANS AFFAIRS TO 
                   GUARANTEE ADJUSTABLE RATE MORTGAGES AND HYBRID 
                   ADJUSTABLE RATE MORTGAGES.

       (a) Permanent Authority To Guarantee Adjustable Rate 
     Mortgages.--Subsection (a) of section 3707 of title 38, 
     United States Code, is amended to read as follows:
       ``(a) The Secretary may guarantee adjustable rate mortgages 
     for veterans eligible for housing loan benefits under this 
     chapter.''.
       (b) Authority To Guarantee Hybrid Adjustable Rate 
     Mortgages.--That section is further amended--
       (1) in subsection (b), by striking ``Interest rate 
     adjustment provisions'' and inserting ``Except as provided in 
     subsection (c)(1), interest rate adjustment provisions'';
       (2) by redesignating subsections (c) and (d) as subsections 
     (d) and (e), respectively; and
       (3) by inserting after subsection (b) the following new 
     subsection (c):
       ``(c) Adjustable rate mortgages that may be guaranteed 
     under this section include adjustable rate mortgages 
     (commonly referred to as `hybrid adjustable rate mortgages') 
     having interest rate adjustment provisions that--
       ``(1) are not subject to subsection (b)(1);
       ``(2) specify an initial rate of interest that is fixed for 
     a period of not less than the first three years of the 
     mortgage term;
       ``(3) provide for an initial adjustment in the rate of 
     interest by the mortgagee at the end of the period described 
     in paragraph (2); and
       ``(4) comply in such initial adjustment, and any subsequent 
     adjustment, with paragraphs (2) through (4) of subsection 
     (b).''.
       (c) Implementation of Authority To Guarantee Hybrid 
     Adjustable Rate Mortgages.--The Secretary of Veterans Affairs 
     may exercise the authority under section 3707 of title 38, 
     United States Code, as amended by this section, to guarantee 
     adjustable rate mortgages described in subsection (c) of such 
     section 3707, as so amended, in advance of any rulemaking 
     otherwise required to implement such authority.
                                 ______