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#2016551 - 05/28/15 02:52 PM ARM - neither discounted or premium
time flies when you're having fun Offline
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If the initial ARM rate is not based upon the index and margin used for future rate adjustments but the rate just so happens to match the fully indexed rate, how does that affect the product disclosued in 1026.37(a)(10)(iv)? Example 5/1 ARM fully indexed rate is 3.5% when locked the intial rate is set at 3.5% which happens to match the fully indexed rate. How do we describe the product?

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#2016836 - 05/29/15 03:02 AM Re: ARM - neither discounted or premium time flies when you're having fun
rlcarey Offline
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You have a five year introductory "period" regardless of how the rate being imposed is calculate. The loan then adjusts every year, therefor 5/1 would be correct.
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#2017192 - 05/29/15 10:53 PM Re: ARM - neither discounted or premium time flies when you're having fun
time flies when you're having fun Offline
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OK. But then I'm stumped about what the commentary to 37(a)(10)-1(i)(A) means. I was thinking that they were referring to ARM loans where the initial rate is fully indexed (no discount, no premium).

Page 1758 1026.37(a)(10)-1.i.
A. No introductory period. If the loan product is an adjustable rate with no introductory rate, the creditor should disclose “0” where the introductory rate period would ordinarily be disclosed. For example, if the loan product is an adjustable rate that adjusts every three years with no introductory period, the disclosure required by § 1026.37(a)(10) is “0/3 Adjustable
Rate.”

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#2017203 - 05/30/15 01:59 PM Re: ARM - neither discounted or premium time flies when you're having fun
rlcarey Offline
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That is because in that example, the rate adjusts every 3 years from the get go. In a 5/1 ARM, you need to tell the person that the rate at the get go will be the same rate for 5 years before the first adjustment.

Don't focus on the rates - they are really talking about periods - except for the fact that they seem to use the terms rate and period interchangeably which makes it very confusing.......
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#2017608 - 06/02/15 03:49 PM Re: ARM - neither discounted or premium time flies when you're having fun
time flies when you're having fun Offline
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To be sure I understand, if we have an ARM that has adjustment periods that are the same throughout the loan, then we use the "0" for the first figure?

Examples:
A. 15 year ARM, initial rate discounted for 5 years then adjusts every 5 years thereafter, disclose "0/5"
B. 15 year ARM, intial rate is fully indexed for 5 years and adjusts every 5 years thereafter, disclose "0/5"

It is the fact that the initial fixed rate period matches the future adjustment period that triggers the "0". Do I have it now?

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#2018341 - 06/04/15 02:41 PM Re: ARM - neither discounted or premium time flies when you're having fun
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Sorry to be a bother, but is my last post on this thread correct? Am I understanding?

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#2018347 - 06/04/15 02:45 PM Re: ARM - neither discounted or premium time flies when you're having fun
John Burnett Offline
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NO bother, CC1. It is correct. The first numeral is "0" unless the duration of the initial period differs from the standard period.
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#2018371 - 06/04/15 03:12 PM Re: ARM - neither discounted or premium time flies when you're having fun
time flies when you're having fun Offline
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I really had this one mixed up. Thanks John -- and thanks Randy.

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#2034132 - 08/17/15 10:39 PM Re: ARM - neither discounted or premium time flies when you're having fun
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Circling back on this one. So is there no such a thing as a 5/5 ARM? Seems not, if the first number is intended to represent the first adjustment period only when it differs from subsequent periods.

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#2034171 - 08/18/15 01:03 PM Re: ARM - neither discounted or premium time flies when you're having fun
John Burnett Offline
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The regulation calls for describing the product in specific ways. They don't necessarily reflect industry labeling norms. Just consider the way that the terms "purchase," "refinance," "construction" and "home equity" are redefined for regulatory purposes when describing the loan purpose under .37(a)(9).
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#2107087 - 11/11/16 09:33 PM Re: ARM - neither discounted or premium rlcarey
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I'm circling back on this one. 37(a)(10) Staff Commentary has the following:

i. Adjustable rate. When disclosing an adjustable rate product, the disclosure of the loan product must be preceded by the length of the introductory period and the frequency of the first adjustment period thereafter. Thus, for example, if the loan product is an adjustable rate with an introductory rate[/b] that is fixed for the first five years of the loan term and then adjusts every three years starting in year six, the disclosure required by §1026.37(a)(10) is “5/3 Adjustable Rate.” If the first adjustment period is not the period for all adjustments under the terms of the legal obligation, the creditor should still disclose the initial adjustment period and should not disclose other adjustment periods. For example, if the loan product is an adjustable rate [b]with an introductory rate that is fixed for the first five years of the loan term and then adjusts every three years starting in year six, and then annually starting in year fifteen, the disclosure required by §1026.37(a)(10) would still be “5/3 Adjustable Rate.”

A. No introductory period. If the loan product is an adjustable rate with no introductory rate, the creditor should disclose “0” where the introductory rate period would ordinarily be disclosed. For example, if the loan product is an adjustable rate that adjusts every three years with no introductory period, the disclosure required by §1026.37(a)(10) is “0/3 Adjustable Rate.”

I do think the first number is tied to an introductory rate and not just the change the period of time; otherwise, there would be never be a 0/3 product. They definitely seem to differentiate between period and rate. Agree?

Rory Flynn CRCM
Last edited by RegResource; 11/11/16 09:35 PM.
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#2107089 - 11/11/16 09:38 PM Re: ARM - neither discounted or premium time flies when you're having fun
rlcarey Offline
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If you have an ARM that adjusts every three years from the get go, it would be a 0/3. This is poorly written and it really only involves the initial and subsequent periods between rate changes and has nothing to do with the actual rates being assessed.
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#2107378 - 11/15/16 05:22 PM Re: ARM - neither discounted or premium rlcarey
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I agree. Just for fun I sent some scenarios into the CFPB question line to confirm; but their switching between rate and period usage in the staff commentary and then their examples do not provide enough clarity. I do see how you're reading it.

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