So, probably a stupid question, but does everyone provide the ARM adjustment notice required by 1026.20(c) (and will be required by 1026.20(c) and (d) under the final TILA Servicing Rule) if the rate actually decreases, rather than increases?

The general requirement (even for the new rule set to take effect 1/10/2014) says:

1026.20(c) Rate adjustments with a corresponding change in payment. The creditor, assignee, or servicer of an adjustable-rate mortgage shall provide consumers with disclosures, as described in this paragraph (c), in connection with the adjustment of interest rates pursuant to the loan contract that results in a corresponding adjustment to the payment.

This would seem to include decreases as well as increases, so even if the consumer is going to pay less, they would need to get the ARM disclosure. I understand, however, that the purpose of the ARM adjustment notice is really more to warn the consumer of increases.

Thanks!

Although the intent may have been to notify the borrower before an increase, the wording of the regulation and the commentary both in the current version and in the January 2014 version uses the word "change." So I agree with your analysis.

Thank you! And on a related note, it appears that the current ARM notice is required to be provided if there's a rate change, regardless of whether or not there is a corresponding payment change in order to tigger the disclosure requirement.

1026.20(c): "an adjustment to the interest rate with or without a corresponding adjustment to the payment in a variable-rate transaction subject to §1026.19(b) is an event requiring new disclosures to the consumer."

The revised 1026.20(c) and (d) taking effect on 1/10/2014 appears to no longer have that language in 1026.20, but now focuses on whether or not interest rate change will result in a payment change. So, only if there is a payment amount change (up or down), will the ARM notices be required now.

1026.20(d) "The disclosures shall be provided to consumers at
least 210, but no more than 240, days before the first payment at the adjusted level is due."

Is that also your understanding? Much appreciated!!

I read it the same way.

I have not seen too many ARMs in which the payment does not adjust. That would mean that the term of the loan would adjust and the annual notice would still be required, both under the old and new regulations:

Old:

(5) The payment, if different from that referred to in paragraph (c)(4) of this section, that would be required to fully amortize the loan at the new interest rate over the remainder of the loan term.


New:

(D) The length of the remaining loan term expected on the date of the interest rate adjustment and any change in the term of the loan caused by the adjustment.

I agree that interest rate changes without a corresponding payment change are rare, but I'm a little confused by your comment:

"and the annual notice would still be required, both under the old and new regulations"

I am assuming you are referring to the annual notice required today under 1026.20(c) that is required at least once each year during which an interest rate adjustment is implemented without an accompanying payment change. It was my understanding that the new regulation contains no such annual notice requirement in 1026.20(c) or (d) or anywhere else. What am I missing??

Thank you!

-Although, I do note that under the new regulation servicers (etc.) are still permitted (though not required) to provide the 1026.20(c) annual notice if want to do so anyway. Though, I wouldn't expect many would wish to do so as it's no longer required and would be one more document the consumer could be confused by (especially now considering the volume of information that will be required in the new periodic statement).

Well, I guess you would be correct. Since an ARM that does not have payment adjustments has the good chance to go into negative amortization, maybe they just did not contemplate anyone making those types of loans anymore?

Does 1026.20(c)(2)(v) require us to include the remaining loan term and balance on subsequent (not the initial) ARM disclosure rate changes? If not, what does that citation refer to? Thank you.

See model form H-4(D)(2)