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#1886709 - 01/14/14 11:25 PM 61 months vs. 60 months
DoorKey Offline
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Wisconsin
We have a five year ARM with a 30 year amortization with a discounted initial rate. In order to not have to qualify the borrower at the maximum rate at the time of the 60th payment (which would likely be higher than the initial rate), we want to change from a 5 year ARM to a 61 Month ARM. That way we could qualify the borrower at the initial rate. Are there problems with doing this?
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#1886768 - 01/15/14 01:41 PM Re: 61 months vs. 60 months DoorKey
RR Joker Offline
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You can invent any ARM program you like so long as your system can handle it and produce correct disclosures/statements, etc.
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#1889385 - 01/23/14 02:54 PM Re: 61 months vs. 60 months DoorKey
Red Raiders Offline
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We could still call it a 5/1 ARM even though we have a fixed initial period of 62 months, right? (and not a 5.1666667/1 ARM smile )
Last edited by raidersn2000; 01/23/14 02:55 PM.
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#1889389 - 01/23/14 02:58 PM Re: 61 months vs. 60 months DoorKey
dblack Offline
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I'm pretty sure you could call it a Donkey if you wanted, as long as the terms agree with regulation. smile
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#1889409 - 01/23/14 03:21 PM Re: 61 months vs. 60 months DoorKey
Red Raiders Offline
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Compliance Land
Donkey it is!! smile
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#1889755 - 01/23/14 09:36 PM Re: 61 months vs. 60 months DoorKey
Clareb Offline
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Joined: Jan 2014
Posts: 30
Massachusetts
Question. I am thinking that the PAYMENT at the time of the 60th month is STILL the same as the payment at the time of the first month. It is 60 month at that payment. The rate changes that month so the intereset for that month is the higher interest as the interest on the 61st (possibly higher NEW payment)is for the previous months interest. I think that you are fine in using the payment made in the 60th month as the bechmark which would be the initial rate, no??

ETA: My thought is that the interest is in arrears.. so that the 61st payment is for the interest on month 60, but you qualify at the PAYMENT on month 60. The payment at month 60 is the same as day one.
Last edited by Clare B; 01/23/14 09:38 PM.
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#1889769 - 01/23/14 09:47 PM Re: 61 months vs. 60 months DoorKey
dblack Offline
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You qualify the applicant based on the highest *rate* possible during the first 60 months after the date of the first payment.

You use that rate to determine what a fully amortizing payment would be and then underwrite.

Last edited by dblack; 01/23/14 09:48 PM.
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#1889785 - 01/23/14 09:55 PM Re: 61 months vs. 60 months DoorKey
Clareb Offline
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Massachusetts
To me, it is the initial rate. Despite the change in rate, it doesn't take effect until the 61st month regardless. On that 60th month, we are still at start rate.
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#1889815 - 01/23/14 10:14 PM Re: 61 months vs. 60 months DoorKey
dblack Offline
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Well, that's not what the regulation says.

(iv) For which the creditor underwrites the loan, taking into account the monthly payment for mortgage-related obligations, using:

(A) The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due; and

(B) Periodic payments of principal and interest that will repay either:

(1) The outstanding principal balance over the remaining term of the loan as of the date the interest rate adjusts to the maximum interest rate set forth in paragraph (e)(2)(iv)(A) of this section, assuming the consumer will have made all required payments as due prior to that date; or

(2) The loan amount over the loan term
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#1889827 - 01/23/14 10:26 PM Re: 61 months vs. 60 months DoorKey
Kathleen O. Blanchard Offline

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Count from first payment, not origination date.
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#1889895 - 01/24/14 01:45 PM Re: 61 months vs. 60 months Red Raiders
trinna Offline
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Midwest
We actually decided to go with a 62 month ARM product at our bank as well and we got counsel on what we should call it. Donkey was not mentioned. Lol.) We were told to be careful with advertising issues and of course, disclosures. You don't want to mislead your customers - a 5/1 ARM would naturally lead them to believe that 5 years = 60 months - not 62. We were advised to call it a 62mo/12mo ARM and we revised our disclosures accordingly.

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#1889900 - 01/24/14 01:58 PM Re: 61 months vs. 60 months DoorKey
dblack Offline
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AL
Good point. I wasn't thinking about advertising when I posted that.
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