The Mortgagee must underwrite the mortgage based on payments calculated using the initial interest rate. For 1-year Adjustable Rate Mortgages (ARMs), if the Loan-to-Value (LTV) is 95 percent or more, the Mortgagee must underwrite the mortgage based on payments calculated using the initial interest rate plus 1 percentage point. If the LTV is less than 95 percent, the Mortgagee must underwrite the mortgage based on payments calculated using the initial interest rate.
For additional information see Handbook 4000.1 Section II.A.8.f.vii at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh