We have a 5/1 ARM construction/perm product that I'm trying to make sense of. The rate is fixed for the first five years, including the 12-month, interest-only construction period. So techinically the rate is only fixed for the first four years of the permanent loan, and it's disclosed that way. The initial ARM disclosure states that the first change will be in forty-eight months. The TIL, which combines both the construction and permanent phases, indicates that the introductory period is four years. It states that interest during the construction period will be paid monthly, followed by the payment/rate information for the permanent phase (i.e., 4 year introductory rate, maximum during five years which is actually six years from the start of the construction period, and maximum ever). Did we disclose it correctly? Is this actually a 4/1 ARM? When running the HPML and rate spread test, should I use a four or five year term?
Don't make me say, "I told you so!" Sincerely, your friendly Compliance Officer.