In this new MDIA environment, how is everyone handling the final TIL disclosures for ARM loans if the index changes within the three business day waiting period before consummation?

Reg Z allows you to choose an index value back as for as your look back period is to set the initial rate. See the Commentary to 226.17(c)(1)(10).

I'm not very familiar with ARM products, so a little more clarification may help. I looked at our ARM note and the look back period is 45 days. So, if the final TIL is based on the most recent index available at time of final disclosure and the loan doesn't close until 44 days later (this is a stretch, but I just want to be sure I understand), would the index be considered in compliance for Reg Z purposes? Should I be relying on the look back period in the legal obligation, or somewhere else?

The reason I'm asking is because an investor did not want to purchase a loan because the index changed from the time the final TIL was disclosed (3 business days prior to close) to the closing date. I think the investor is wrong in their interpretation of the regulation. Do you agree?

Keep in mind when you deal with investors you deal with their rules.

If I understand your question correctly I am going to say no.

The Reg. may allow you to use an index value within that 45 days to establish your initial rate but if you establish the initial rate based on the "current" index then your APR tolerance is based on that rate because that is when the rate was set for the final time.

I just read 226.17(c)(1)(10)and want to make sure I am understanding it correctly.

If the initial rate is not based on the current index - I take that to mean that the index rate is not a factor in how management sets our rates - we can go back as far as 45 days and decide what index rate we want to use at the time of closing? If so, can we just use the index rate that was in affect at the time the application was taken, that way you would almost be assured that the APR would not change from application to closing (assuming all the other factors of the APR do not change).

I'd like to know as well. How many use the index from the date the application was taken?

Anyone?

Yes you could. But if you took the application on 11/11 and you decide today that the index on 11/11 is the one you will use then 12/8 is the date the rate was set and that is the date used for calculating the APR tolerance.

Would it be acceptable to use the index as of the lock date for the final calc at closing? The lock date is the trigger for the APOR calculation so it would be consistent to use the current index for the calculation of the APR.
Regards

Dan just answered that question above.

If you set the rate at time of application you can use the index on that date. With the 45 day look back condition, we would then have to close within 45 days to be able to use that index. Which is not a problem for us since we usually close within 20 days (assuming no title or appraisal issues). We only comment to a rate for 30 days so we would be resetting the rate on the 30th day and using the index on that date (our new lock date). We commit to the same rate but having the commitment only set for 30 days allows us to report the loan as "Approve/Applicant Rejects" for HMDA if they walk away from the deal for some other reason.

If you set the rate at a later date, such as when the loan is approved or a few days prior to closing, you would use the index on that date.

Hope that helps.

Thank you so much!!!

I just want everyone to be clear on the "index" and the date.

When you set your rate you use the 5-year constant maturity as your index then you can use any value for that index within the past 45 days, providing your contract calls for the 45 day look back.

If you use the 5-year consant maturity value in affect on 11/11 but you set the rate on 12/8 the APOR "index" in affect on 12/8 is the APOR index the APR is compared to. It will not be copared to the APOR index in affect as of 11/11.