I am in discussion with our vender about the interpretation of the following section of 1026.20:

The disclosures shall be provided to consumers at least 25, but no more than 120, days before the first payment at the adjusted level is due for ARMs with uniformly scheduled interest rate adjustments occurring every 60 days or more frequently and for ARMs originated prior to January 10, 2015 in which the loan contract requires the adjusted interest rate and payment to be calculated based on the index figure available as of a date that is less than 45 days prior to the adjustment date.

We have a few ARM on our books originated prior to Jan 2015 that have 0 lead days. Our vendor is saying that the notice does not apply to these loans. I disagree due to the cite I copied above.

Do any other banks have loans set to a same day rate adjustment, and how do you provide the notice?

I agree with you. Those loans definitely need the notice.The only difference is that the timing of the notice for those zero lead day loans is '25 -120' days rather than '60 - 120' days.

1026.20(c) (2) Timing and content. Except as otherwise provided in paragraph (c)(2) of this section, the disclosures required by this paragraph (c) shall be provided to consumers at least 60, but no more than 120, days before the first payment at the adjusted level is due. The disclosures shall be provided to consumers at least 25, but no more than 120, days before the first payment at the adjusted level is due for ARMs with uniformly scheduled interest rate adjustments occurring every 60 days or more frequently and
for ARMs originated prior to January 10, 2015 in which the loan contract requires the adjusted interest rate and payment to be calculated based on the index figure available as of a date that is less than 45 days prior to the adjustment date. The disclosures shall be provided to consumers as soon as practicable, but not less than 25 days before the first payment at the adjusted level is due,

for the first adjustment to an ARM if it occurs within 60 days of consummation and the new interest rate disclosed at consummation pursuant to § 1026.20(d) was an estimate. The disclosures required by this paragraph (c) shall include:

Just out of curiosity, how have you been complying prior to 1/10/15 with the timing requirements to provide subsequent adjustment notices 25-120 days out? That was the old requirement and while the format of the disclosures and the timing requirements changed, the requirement to provide arm notices has not. What have you been doing in the past for those ARM loans?

Just to double check, are those loans closed-end consumer credit loans secured by principal dwellings? (just double checking they are subject to Reg. Z)

I agree. This whole thread has had me a little bit lost also as to how could anyone have offered a consumer product like this in the last 25 years or so.

Prior to the update we utilized an "in-house" notice for these loans because our vendor did not provide rate review notice for zero lead day loans. When the changes went into effect our in-house notice no longer complied with all the content requirements. We have pushed back to our vendor, because for us to create these notices now is just not feasible.

We have started a review of each loan and original contract to ensure what our effected population is. I just can't understand why the vendor would not facilitate this.

I have never dealt with this type of ARM in my past banking experience, so it is new to me. I am sure at one point in time someone thought this product was a great idea ..... (someone not working in loan servicing)

I understand why your vendor told you that you were on your own. You are asking them to do something that is virtually impossible. You need to get legal counsel involved.

I agree with rlcarey, you are asking the vendor to create a disclosure that doesn't exist. There is no way you can comply with the timing requirements for these loans under the revised (January 2015) or pre-Jan 2015 requirements of Reg. Z. Also, if the vendor were to try to modify the language on the new Reg. Z arm notices, the notices would not make any sense.

While you are checking these loans, look to make sure they aren't exempt from the ARM notice requirements for some other reason (e.g. term of less than 1 year, etc.). Good luck!

If you change the rate on 08/01 and change the payment effective 09/01 there is plenty of time to get the new notice in the mail at least 25 days before the payment at the new amount is required. This is not a big deal. it worked under the 'old' timetable and the 'new' timetable is the same for those loans.

StevenD, I agree, assuming the rate and payment changes dates are a month apart. I assumed "0 lead days" meant the rate and payment changed on the same date, but perhaps I misunderstood the original question.

Yes, the rate changes on 8/1 (rate/index used as of 8/1) the payment would then change on 9/1. Our problem is not the timing requirement, but the content of the notice is not in compliance with the newer requirements.

We are reviewing our loans in question to determine any chance of exceptions, but my main concern was that our vendor informed our servicing department that the notice would not be required for these loans, and I did not believe that to be the case.

I appreciate all comments, now I have some work to do to make sure we get this neutralized.

If it is any help, the requirements only apply to loans secured by a 'principal dwelling.' We do not try to make the distinction, but that provision may excuse some of your notes.

1026.20(c) (1) Coverage. (i) In general. For purposes of this paragraph (c), an adjustable-rate mortgage or “ARM” is a closed-end consumer credit transaction secured by the consumer’s principal dwelling in which the annual percentage rate may increase after consummation.

We have these all the time. Your rate change today, and your payment changes next month. It wasn't until last year that our attorney moved us to 25 day lookback period, which we really struggled with for a while. Now we have loans with multiple lookbacks which is a PITB. Our vendor never had a problem generating these. They added some new switches and tracking codes and now the notices kick out earlier -- its getting people to get out of the mindset and sending them out earlier. And our customers are thoroughly confused by why we send them a rate & payment change notice so early. They start trying to make the new payment now.