The ARM program disclosures when prin dwell will secure the loan must be given when an application form is provided. I recently visited a site where the ARM application is submitted first, then the ARM disclosure is provided. Isn't that not compliant with Reg Z?

TILA requires 2 ARM disclosures:

1. The CHARM BOOKLET (provided at or within 3 days of applcation
2. Product related ARM Disclosures (content maintained by TILA). This product ARM disclosure is to be provided upon the inquiry, upon request, but no later than 3 busienss days after application. Technically, the loan officer must provide at inquiry (which is generally only documented through procedures); hence providing within 3 days of application.

Hope this helps

226.19(b) requires the ARM Disclosure be provided to the consumer at the time an application form is provided to the consumer or before the consumer pays a non-refundable fee, whichever occurs first.

See the timing requirements in the Commentary to 226.19(b).

If # 2 is your procedures then you need to revamp them because they are not in compliance with 226.19(b) unless you are receiving you applications from intermediary agents or brokers.

I have always been in a quandary regarding how to comply with this, because if a customer just wants a form to take home and complete, it's not known whether he/she will be requesting a variable or fixed rate.....the customer may not even know at that point. Additionally, the bank has to provide a disclosure for each program for which the borrower expresses an interest. Again, the borrower may not know at that point and ARM Disclosure possiblities are endless....not cookie cutter.

That scenario is generally addressed in the Commentary where it discusses when the consumer "expresses an interest" in your ARM program(s).

We will not just hand out an application form. If a consumer requests an application to take home we have an application packet we give them. In that packet is all the required Federal and state disclosures generally required at the time of application.

The disclosures that are not required once a product is decided on are discarded/recycled.

It's been a long time since I've reviewed an ARM disclosure, but it seems that if you provided an ARM disclosure for every scenario in every loan packet, you'd have gallons of paper.

Currently, we have no ARM products.....but we might bring 'em back in the future.

We have 1/1, 3/3 and 5/5 program. Nothing varies from what it is disclosed other than maybe a different margin may be negotiated or the term may vary. But changing the margin does not constitute a separate plan and would not require a separate disclosure. The disclosures are based on a 15 year amortization which under the Reg are valid for terms between 10 and 20 years. If a term is negotiated less then 10 or greater than 20 years (which would be an exception to policy) the LO will contact me and I will provide them with an updated disclosure reflecting the negotiated terms. This happens maybe 2 or 3 times per year.

In my post, I was referring to a web site online application where the ARM disclosure is provided after the application is submitted. That doesn't seem compliant.

On-line applications are addressed in the Commentary. If the disclosures are not provided until after the consumer submits the application then they are in direct violation of 226.19(b):


C. Creditors could provide a link to the electronic disclosures on or with the application as long as consumers cannot bypass the disclosures before submitting the application. . . .

It isn't. An effective procedure would be to use a couple of pages to step into the application form.

My first screen would be to determine that the potential applicant is of age to contract and the property (or applicant) is located within my service area for this type of product. If the person can't pass these basic tests, refer him/her to a real live loan officer to discuss alternatives to this product and offer no further electronic option.

My second screen would determine what product type(s) will be the subject of the application. On this page, I would at least determine if the customer wants a FR or ARM. Here, you should probably terminate the application process until the applicant chooses a type.

If the applicant selects "ARM" on the second screen, the next page will be the CHARM booklet and at least one program disclosure.

Only when the applicant clicks the button exiting the disclosures page does he/she get to the first page of the application form.

This is going to sound kind of ignorant.....but what does 1/1, 3/3 and 5/5 mean?

1/1 - initial rate is fixed for one year and then adjusts each year thereafter.

3/3 - initial rate is fixed for three years and adjusts every three years thereafter.

5/5 - initial rate is fixed for five years and adjusts every five years thereafter.

Ah! Well, I reviewed a copy of what our software currently provides (LaserPro) and checked off the (i) through (xii) from Reg Z. It's all there. But at the top it says "Program Name" and then displays the exact index, exact margin and exact term as the program name.

That's why I commented that if those three factors are referred to as the program name, we could have thousands of program combinations. Sounds like there should be a way to assign a generic program name.

If you have a home improvement loan for 7 year principal and interest monthly payment, we need to also provide an ARM? the loan is tied to prime.

If it's a consumer purpose loan secured by the consumer's primary residence for a term greater than 12 months where the interest rate can change after consummation then you must provide the ARM disclosure regardless of the payment terms or the lien position.

Dan, I was researching ARM disclosures and what must be disclosed and ran accorss this old thread. Are you saying that the program disclosures could all be based on 15 amort. for terms 10 to 20 years? Please tell me where to find this!

See the Commentary to 1026.19(b)(2)(viii)(A)(5).

Dan, did you help Alan Dunbrow write TIL? I saw him as a panelist once and quoted commentary just like that.

No, I have never had the pleasure of meeting Alan. A lot of my Reg. Z background comes from Richard. I attended a couple of ABA compliance schools in OK that he taught at in the early to mid 90s.

And my other secrets are - search, copy and paste.

Oh, and 39 years in the finance business in one capacity or another.