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#1738546 - 09/06/12 06:19 PM Irregular vs. Regular transaction
wns Offline
Junior Member
Joined: Dec 2010
Posts: 41
What is the difference between a regular and an irregular transaction, specifically as it relates to an APR tolerance violation?
For instance, would a 5/1 ARM be considered a regular or irregular transaction?

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#1738561 - 09/06/12 06:30 PM Re: Irregular vs. Regular transaction wns
Rocky P Offline
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Joined: Jun 2003
Posts: 7,641
Florida
The commentary to 1026.22 provides a good explanation. As I understand it, regular if subsequent payments are the same, irregular if the initial payment stream is different, as in a premium or discounted ARM.

1. Irregular transactions. The annual percentage rate for an irregular transaction is considered accurate if it varies in either direction by not more than1/4of 1 percentage point from the actual annual percentage rate. This tolerance is intended for more complex transactions that do not call for a single advance and a regular series of equal payments at equal intervals. The1/4of 1 percentage point tolerance may be used, for example, in a construction loan where advances are made as construction progresses, or in a transaction where payments vary to reflect the consumer's seasonal income. It may also be used in transactions with graduated payment schedules where the contract commits the consumer to several series of payments in different amounts. It does not apply, however, to loans with variable rate features where the initial disclosures are based on a regular amortization schedule over the life of the loan, even though payments may later change because of the variable rate feature.
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#1738685 - 09/06/12 09:10 PM Re: Irregular vs. Regular transaction wns
Richard Insley Offline
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Richard Insley
Joined: Oct 2000
Posts: 10,169
Toano, VA
Footnote 46 contains the rule:
For purposes of paragraph (a)(3) of this section, an irregular transaction is one that includes one or more of the following features:
- multiple advances,
- irregular payment periods, or
- irregular payment amounts....


Paraphrasing the remainder of the footnote:
An "irregular payment period" does not include an irregular first period (i.e.--"odd days".)
An "irregular payment amount" does not include an odd first payment or an odd final payment (such as a balloon.)


Back to the original question: is a 5/1 ARM "regular" or "irregular"?

Once in a while, ARM loans are priced at par, i.e.--the note rate equals the fully-indexed rate. When this happens, there are no "steps" in the payment schedule. The loan may have "odd days" up front and a final payment that's off by a dollar or two, but that's not enough to make the payment schedule "irregular." Loans of this type would be "regular."

Any other ARM product configuration would be "irregular", including:
- ARMs that are construction/perm (due to multiple advances)
- ARMs with PMI or GMI (because the monthly renewal premiums cause payment amounts to fluctuate during the term of the loan)
- ARMs with discounted or premium pricing (due to the "steps" in the payment schedule necessary to show the effects of the rate changes from the note rate to the fully-indexed rate)
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