Skip to content
BOL Conferences
Thread Options
#2069123 - 03/15/16 01:29 PM Terms of different lengths - Separate ARM Programs
Likes to Comply Offline
Diamond Poster
Joined: Nov 2008
Posts: 1,107
In the mountains
We have only been originating ARM loans for about 8 months. Because we did balloon loans before, we have some loans coming up for renewal that have an odd number of years left to amortize out.

We currently have a 15, 20, 25 and 30 year ARMs. The only difference between the products is the initial premium rate that is charged for the first seven years. We have program disclosures for each of these. We give all 4 program disclosures with an application so that the customer may choose the program they prefer.

For our customers with an odd number of years to amortize out, they don't always want to extend the term of their loans by going up to the next closest term of our ARM product and in some cases they cannot go down in the term because of ATR or don't want the higher payment from the shorter amortization.

So can we just put them in a 7/1 ARM with a term of lets say 17 years and give them all the other terms of the 15 year ARM product without having a program disclosure that reflects this?
_________________________
Always learning something new...

Return to Top
Lending Compliance
#2069128 - 03/15/16 01:36 PM Re: Terms of different lengths - Separate ARM Programs Likes to Comply
Likes to Comply Offline
Diamond Poster
Joined: Nov 2008
Posts: 1,107
In the mountains
A 10 year ARM may have been a better example...after many 5 year balloon loans, the customer can pay out their loan in 10 years. Can we just use the terms of the 7/1 ARM 15 year product and only change the length of the payout without needing a ARM program disclosure for that term?

Thanks in advance for your help.
_________________________
Always learning something new...

Return to Top
#2069162 - 03/15/16 02:36 PM Re: Terms of different lengths - Separate ARM Programs Likes to Comply
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
https://www.bankersonline.com/regulations/12-1026-019

Look at the Commentary 1026.19(b)(2)(viii)(A) comment 5.

Return to Top
#2069239 - 03/15/16 04:02 PM Re: Terms of different lengths - Separate ARM Programs Likes to Comply
Likes to Comply Offline
Diamond Poster
Joined: Nov 2008
Posts: 1,107
In the mountains
Thanks for that reference Dan. We don't include a historical example, we disclose the initial and maximum interest rates and payments. But 1026.19(b)(2)(viii)(B) comment 2 states that to follow the rules in comment 19(b)(2)(viii)(A)-5.

Currently the ARM program disclosures are titled as 7/1 15YR ARM, 7/1 20YR ARM, 7/1 25Y ARM and 7/1 30Y ARM. The initial/maximum interest rates and payments are based on the term indicated in the title. This is ok, but it looks like it will not work necessarily for the years in-between.

If the term is up to 10 years, the example may be based on a 5-year term. over 10 years to 20 years may be based on a 15-year term and over 20 years may be on a 30-year term we are not going to base the disclosures on each term to maturity.

Since the only thing that changes from one of our ARM programs to the other is that the initial premium interest rate is different depending on the length of the term. I could probably really have just one program disclosure and include three different initial/maximum interest rate and payment examples for 5, 15 and 30 year terms.

Only that since our ARMs are 7/1s, if the loan is 7 years or under the customer will get a fixed rate product that fully amortizes. So it seems an example using a 5-year term would be not be clear.

I've confused myself and will have to go back and re-read the whole section.
_________________________
Always learning something new...

Return to Top
#2069248 - 03/15/16 04:18 PM Re: Terms of different lengths - Separate ARM Programs Likes to Comply
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
I doesn't matter if you have a 1/1, 3/1, 5/1 or 7/1 ARM. You have to look at the amortization. Also you don't have to use the historical example. We use the "worse case scenario".

If your amortization is greater than 1 year up to 10 years you could base your disclosure on 5 years. This is what we do.

If your amortization is greater than 10 years up to 20 years you could base your disclosure on 15 years. This is what we do.

If your amortization is greater than 20 years you could base your disclosure on 30 years. This is what we do.

Of course as the reg states you can disclose the actual term if you wish to. What you cannot do is use a disclosure with a 15 year amortization for a loan that will have a 25 year amortization.

Here's an example of one of our in-house ARM disclosures.

* For example, on a $10,000 180-month loan with an initial interest rate of 5.500 in effect in January 2016, the maximum amount that the interest rate can rise under this program is 6.000 percentage point(s), to 11.500 percent, and the monthly payment can rise from an initial payment of $81.71 to a maximum of $105.85 in the 61st month (5 years, 1 month). To see what your payments would be, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount (for example, the monthly payment for a mortgage amount of $60,000 would be: $60,000 / $10,000 = 6; 6 x $81.71 = $490.26 per month).

Return to Top

Moderator:  Andy_Z