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Variable Rate Mortgage Loan Disclosure
Answer by Richard Insley and Lucy Griffin, BOL Gurus
Question: Our bank offers variable rate mortgage loans with a term of more than 1 year. These are not considered to be arms due to the fact that if the loan has a level payment of principal and interest, and the rate changes, the payment does not change. What types of disclosures should we be giving for these loans? The ARM Disclosure doesn't seem to fit.
Answer by Richard Insley:
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The same rules apply to ARMs allowing negative amortization as to those that do not permit it.
Answer by Lucy Griffin:
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ARMs are defined not by the payment amount but by the fact that the rate can change. The product you describe is definitely an ARM. You will need to adapt the ARM disclosures to illustrate the effect of rate changes on amortization.
First published on BankersOnline.com 8/11/03
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