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#1875962 - 12/04/13 05:22 PM APR calculation on an ARM
dblack Offline
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What are you going to use to calculate the APR for HCML thresholds on an ARM?

Our current loan system doesn't have the ability to produce the different, HCML APR in a single process with the normal, disclosed APR.

Having the processor load the parameters again to produce a "quote" based on the fully indexed rate seems cumbersome, but may be the route we take.
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#1875967 - 12/04/13 05:28 PM Re: APR calculation on an ARM dblack
rlcarey Offline
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What do you mean - recalculate the APR?
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#1875975 - 12/04/13 05:41 PM Re: APR calculation on an ARM dblack
dblack Offline
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The additional calculation needed to determine the APR for HCML coverage testing in 1026.32(a)(3)(ii).

From page 121 of the Preamble.

Second, notwithstanding industry’s complaints about the burdens of performing an
additional calculation, the Bureau implements in the final rule the statutory requirement to
calculate APRs for high-cost mortgage coverage pursuant to the requirements set forth in TILA
section 103(bb)(1)(B)(ii) and (iii), rather than in accordance with the rules for composite APRs
for disclosure purposes under § 1026.17. The Bureau acknowledges that the final rule may
require creditors to conduct an additional calculation to determine high-cost mortgage coverage
for variable-rate transactions. However, the Bureau believes that Congress made a deliberate
decision to depart from the general APR calculation, to ensure that introductory rates not be
given undue weight in determining whether a transaction is a high-cost mortgage. Despite the
additional burden associated with a different calculation, the Bureau does not believe that
avoidance of an additional calculation is a sufficient basis to use its exception authority to depart
from the clear intent of the statute.
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#1875979 - 12/04/13 05:49 PM Re: APR calculation on an ARM dblack
rlcarey Offline
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rlcarey
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So, you are saying you can't calculate the interest rate using these parameters?


(3) Determination of annual percentage rate. For purposes of paragraph (a)(1)(i) of this section, a creditor shall determine the annual percentage rate for a closed- or open-end credit transaction based on the following:

(i) For a transaction in which the annual percentage rate will not vary during the term of the loan or credit plan, the interest rate in effect as of the date the interest rate for the transaction is set;

(ii) For a transaction in which the interest rate may vary during the term of the loan or credit plan in accordance with an index, the interest rate that results from adding the maximum margin permitted at any time during the term of the loan or credit plan to the value of the index rate in effect as of the date the interest rate for the transaction is set, or the introductory interest rate, whichever is greater; and

(iii) For a transaction in which the interest rate may or will vary during the term of the loan or credit plan, other than a transaction described in paragraph (a)(3)(ii) of this section, the maximum interest rate that may be imposed during the term of the loan or credit plan.


This is not saying that you have to determine the interest rate based on the above parameters and then figure out a new payment stream and then recalculate all the PPFC, etc. The interest rate based on these parameters is the APR for this specific purpose.
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#1875989 - 12/04/13 06:01 PM Re: APR calculation on an ARM rlcarey
dblack Offline
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Originally Posted By: rlcarey
So, you are saying you can't calculate the interest rate using these parameters?


(3) Determination of annual percentage rate. For purposes of paragraph (a)(1)(i) of this section, a creditor shall determine the annual percentage rate for a closed- or open-end credit transaction based on the following:

(i) For a transaction in which the annual percentage rate will not vary during the term of the loan or credit plan, the interest rate in effect as of the date the interest rate for the transaction is set;

(ii) For a transaction in which the interest rate may vary during the term of the loan or credit plan in accordance with an index, the interest rate that results from adding the maximum margin permitted at any time during the term of the loan or credit plan to the value of the index rate in effect as of the date the interest rate for the transaction is set, or the introductory interest rate, whichever is greater; and

(iii) For a transaction in which the interest rate may or will vary during the term of the loan or credit plan, other than a transaction described in paragraph (a)(3)(ii) of this section, the maximum interest rate that may be imposed during the term of the loan or credit plan.


This is not saying that you have to determine the interest rate based on the above parameters and then figure out a new payment stream and then recalculate all the PPFC, etc. The interest rate based on these parameters is the APR for this specific purpose.



So, you are saying that according to (i)above the contract rate is going to be the APR for HCML calculation purposes on fixed rate loans? It is hard for me to believe that.

It says to calculate "based on the following" not APR equals the following.
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#1876196 - 12/05/13 12:03 AM Re: APR calculation on an ARM dblack
rlcarey Offline
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rlcarey
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OK, I have to admit that I had not spent too much time on this section. However, after further review, I concur with you.

Banks are going to have to put some pressure on their LOS system vendors to allow these second or "what if" calculations.
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#1876222 - 12/05/13 02:19 PM Re: APR calculation on an ARM rlcarey
dblack Offline
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Originally Posted By: rlcarey
Banks are going to have to put some pressure on their LOS system vendors to allow these second or "what if" calculations.


I agree. Management here decided VERY late in the game to go to ARMS as of 1/10/14 so I had not been worried about this. Now I am scrambling around to figure out an easier work around for this calculation for the time being.
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#1877149 - 12/09/13 07:16 PM Re: APR calculation on an ARM dblack
dblack Offline
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Bump. Anyone care to share their process?
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#1877199 - 12/09/13 09:03 PM Re: APR calculation on an ARM dblack
akerska Offline
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Our software calculations engine provider added a second rate for ARMS that returns the value as a fixed rate to be used only for the HOEPA calculation. From the research I did on it that seemed to be the only way to go.

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#1877576 - 12/10/13 10:26 PM Re: APR calculation on an ARM dblack
dblack Offline
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Thanks.

I ended up adding something to my HCML worksheet to calculate the APR.

Still testing it against APRWIN, but it appears to be good to go at the moment.
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