We began offering a 5/1 ARM product approximately 2.5 years ago. The first rate/payment changes won't start happening for another 2 and a 1/2 years. My first question: Will we be required to send the new ARM rate adjustment notices? I believe the answer is yes, because the new disclosure applies to the initial change, which this would be.

So, this leads me to my next question...our Promissory Notes currently indicate that the rate change is based on a figure available 45 days before each change date. The timing of the new notices are well outside of 45 days. Our concern is that we will have a contract violation issue if we adhere to the new timing requirements. Is there a caveat in the regulation that I am missing that would allow for these subsequent changes so that we can both comply with the reg and not violate the contract?

Is anyone else looking at this issue? Or have any thoughts on what to do with the existing ARMs?

Yes, you will need to send initial and subsequent ARM change notices to ARMs already on the books.

Most banks use the 45 day lookback period you reference for the rate change. The new notice timing is based on the date of the payment change, not rate change. Typically the first changed payment is due 30 days after the rate change, so when you add the 45 days lookback and the other 30 days for the payment due date you've got 75 days which is well within the 60-120 day requirement.

Busy Bee - you will need to send the initial rate change notice 210 - 240 days prior to the initial rate change date. This notice is an ESTIMATE of what the new rate will be.
You will also send a notice 60 - 120 days prior to the first changed payment due date. This notice will have the ACTUAL new rate and payment that is determined 45 days prior to the rate change. As Carolina detailed, the timing of this will work for you. This is the subsequent notice that you will also provide for each additional rate and payment change.