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#2038502 - 09/15/15 01:50 PM ARM re-disclosure/APR changes
solbrillante Offline
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solbrillante
Joined: May 2011
Posts: 85
I really need help of a loan expert to make sense of the regulation, because reg Z and X are not my strong point. We want to implement a new ARM product with no introductory rate. The rate will always be tied to an Index plus margin, and it will adjust every 5 years. So it’s not your typical 3/1. Whatever the index is at consummation plus margin will be the initial rate and then adjust every 5 years. No discounts or premiums.

I am very confused with the existing regulation and commentary from the new TRID rules. The product won’t go live probably until after the TRID rules go in effect which is why I’m mentioning both regulations.

Section 1026.17(f)(2) says that if the APR at consummation varied from the APR disclosed earlier by more than the tolerance, we have to re-disclosed. Question #1: Let’s say I provide the ARM program disclosure and early disclosures based on the index plus margin on July 1. At consummation August 15, the index changes, causing my APR to increase more than the tolerance. Do I have to re-disclose? According to this section I do, but that doesn’t make sense to me since it’s an ARM.

However….

Section 1026.37(b)(2) says that for an ARM you can use the fully indexed-rate at the time of disclosure, and the index in effect at consummation need not be used if the contract provides for a delay in the implementation of changes in an index value. For example, if the contract specifies that rate changes are based on the index value in effect 45 days before the change date, creditors may use any index value in effect during the 45 days before consummation (or any earlier date of disclosure) in calculating the fully-indexed rate to be disclosed.

According to this section, I wouldn’t have to re-disclose as long as the contract specifies delay in implementation. So I have two questions on this: Question #2- Where is this provision, in the note or in the early disclosures? Question #3- How can I put a provision that I’ll use an index in the last 45 days, when §1026.20 c and d, says we have to notify the customer 210 days (initial change after consummation) or 60 days (subsequent changes) before payment changes?

I’m probably taking about apples and oranges and don’t even know it. Our vendor is LaserPro and they are not being very helpful in creating the proper disclosures. The basic question, is do I have to re-disclose if the index changes at consummation causing me to be above the tolerance? Or can I put a provision somewhere, and if I do, where would that be? The note, or disclosure statement.

I know it’s a long post, so if I get no replies, I understand. Thank you for taking the time to read this.

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TRID - TILA/RESPA Integrated Disclosures Rule
#2038507 - 09/15/15 01:58 PM Re: ARM re-disclosure/APR changes solbrillante
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 78,584
Galveston, TX
What is the deal about re-disclosure. You will have to issue the CloD three days before closing anyway with the then current APR. I don't understand your conundrum???
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#2038510 - 09/15/15 02:20 PM Re: ARM re-disclosure/APR changes solbrillante
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,628
Bloomington, IN
For example, if the contract specifies that rate changes are based on the index value in effect 45 days before the change date, creditors may use any index value in effect during the 45 days before consummation (or any earlier date of disclosure) in calculating the fully-indexed rate to be disclosed.

This simply means at consummation you can use any index value within the past 45 days. If the current index value would cause your APR to be out of tolerance you can choose to use a lesser index within the past 45 days to keep the APR within tolerance. Your starting fully indexed rate would be based on the index value chosen plus the margin. This would be the rate until the first change date in 5 years.

If you choose to use the current index and it causes the APR to be out of tolerance you would need to redisclose, but as Randy stated under TRID you have to provide the CD a minimum of 3 business days before consummation so that would suffice as your redisclosure of the APR.

As for where this is in your note and/or mortgage it is in the section referring to how the rate and payments can change.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2038552 - 09/15/15 04:21 PM Re: ARM re-disclosure/APR changes solbrillante
solbrillante Offline
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solbrillante
Joined: May 2011
Posts: 85
Thank you for the responses. I thought that regardless of the Closing Disclosure, you would have to re-issue new Loan Estimates if the APR was out of tolerance. I guessed I missed the point that the Closing Disclosure also serves as a re-disclosure.

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