Change Date

September 15, 2004, Change 4

·   This section has been changed to create subsection lettering.

·   Subsections c and i have been changed to delete references to “CRV.”

a. Description

A GPM is a mortgage with the following amortization features:

·   lower initial monthly payments than payments on a comparable mortgage under the standard amortization plan

·   periodic (normally annual) increases in the monthly payment by a fixed percentage for a stated “graduation period,” and

·   monthly payments that level off after the graduation period and remain the same for the duration of the loan.

-   The payments, after the leveling off period, are higher than payments on a comparable mortgage under the standard amortization plan.

The method used to achieve this involves deferring a portion of the interest due on the loan each month during the graduation period and adding that interest to the principal balance.  This

·   decreases the monthly payments during the graduation period, and

·   increases the outstanding principal balance during the graduation period, creating “negative amortization.”

b. Acceptable Use of GPMs

GPMs should be used as an alternative for qualified veterans whose income

·   is expected to increase at a rate which can accommodate the increase in monthly payments, or

·   is currently sufficient to accommodate the higher GPM payments after the leveling off period.

GPMs should not be used as a tool to qualify veterans who cannot qualify for loans under the standard amortization plan unless their income can reasonably be expected to increase at a rate which can accommodate the increase in monthly payments.