Was testing new TIL and noticed after the Variable Rate boxes (Applicable or Not Applicable) no info pulls into the section on how the apr may increase. Is it true regulations say we are not required to complete that section? It seems that could worry some customers.

Section 226.18(f) of Reg. Z has two ways to make variable rate disclosures.

If the loan is secured by the consumer's principal dwelling and the loan term is greater than one year, then you would have provided ARM program disclosures at application under section 226.19(b). If this is the case, you can say "Your loan contains a variable rate feature. Disclosures about the variable rate feature have been provided to you earlier." (See 226.18(f)(2) and Appendix H Model clause H-4(B))

For variable rate transactions that are not secured by the consumer's principal dwelling or those that are but have a term less than one year, you have to make more detailed variable rate disclosures on the TIL. See 226.18(f)(1) and Appendix H model clause H-4(A).

I am having that same problem with ARTA Lending software. They say that we have to provide the ARM Disclosure on construction loans greater than 1 year. WE NEVER HAVE BEFORE. We have been reviewed by our outside compliance auditors and the FDIC for 6 years and this has never been an issue or violation or any other. Our construction loans are Variable Rate Wall Street Prime and the interest rate can change as often as daily depending on the index change. If we consider it an ARM loan we could only change the rate as often as 30 days in order to give the rate change notice to borrowers 30 days before the rate change. What am I missing and have we been doing this wrong for forever and a day. HELP.

You've been lucky.

From Reg Z 226.19(b);

(b) Certain variable-rate transactions.45a If the annual percentage rate may increase after consummation in a transaction secured by the consumer's principal dwelling with a term greater than one year, the following disclosures must be provided at the time an application form is provided or before the consumer pays a non-refundable fee, whichever is earlier:

Let me re-phrase my scenario: Our construction loans are INTEREST ONLY, variable rate (Wall Street Prime), rate adjustable daily, and closed end (non-revolving). NOW, if we do an adjustable rate disclosure it says that we have to notify the borrower 25 days in advance of a payment change, including the new rate, etc. By nature, this construction loans payment is going to change monthly anyway due to the number of days in the month and the outstanding principal balance. SO, I ask How can this be a so-called adjustable rate product. I am going crazy with this issue. Thanks for helping!!!

It's a consumer purpose loan with a term greater than 12 months secured by the consumer's principal dwelling where the rate can change after consummation.

How you handle the change notice requirements is between you and your system's vendor.

Most banks have discontinued these products because of the required notice challenges.

If I may throw my two cents in here regarding the variable rate construction loan with a term greater than one year: the ARM disclosure is required if the loan is secured by the consumer's principal dwelling; however, if the loan is secured by the property under construction, then the ARM disclosure is not required - correct?

Not correct. If the dwelling will become the consumer's principal dwelling within 1 year of purchase or the construction is complete it is considered the consumer's primary dwelling. From the Commentary to 226.23.

. . . When a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within one year or upon completion of construction, the new dwelling is considered the principal dwelling if it secures the acquisition or construction loan. . . .

Awesome...thanks for the clarification, Dan!

Sorry, I feel like I'm beating a dead horse - but - does it make a difference if the perm financing is not done with the construction financing. The initial loan is for construction only. Perm would be done later by a different lender.

Temporary financing is not an exemption for the provisions of 226.19(b).

Okay, thank you for all your help.