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#2118734 - 02/17/17 01:00 PM ARM Alternative
ns Offline
Member

Registered: 08/02/16
Posts: 59
A LO at our FI offered an ARM Alternative program (pre-TRID program) on a 30 year purchase with a fixed rate. It's basically a lender buydown. The Note rate is 4% but the lender is putting funds from the over par pricing into an escrow account to reduce the interest for the 1st two years. Year 1 borrower pays 2%, year 2 borrower pays 3% and years 3-30 the 4% note rate. The system is not supporting the options selected. The loan is being sold on the secondary market and the investor is insisting an AIR table be on the disclosures. The adjustments are not based on an index so that doesn't make sense. The software also does not support temporary buydowns for loans after 01/30/2011. Could anyone provide guidance? Should this program no longer be offered? My interpretation of the reg is it should be step rate product not fixed rate with no AIR table. Am I going in the right direction?

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#2118803 - 02/17/17 04:06 PM Re: ARM Alternative [Re: ns]
Docs Offline
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Registered: 05/13/16
Posts: 206
Sounds like you have a step-rate transaction. The AIR table is also required on a step-rate. See the details at 12 CFR 1026.37(j) and relevant commentary. Perhaps your LOS is not programmed to handle a step-rate correctly?
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Just my opinion, I could be wrong. - Dennis Miller

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#2119046 - 02/21/17 05:49 PM Re: ARM Alternative [Re: ns]
ns Offline
Member

Registered: 08/02/16
Posts: 59
The only issue with using the AIR table is that this loan is not based on an index since it's basically a lender buydown so we wouldn't want to use the AIR table.

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#2119047 - 02/21/17 06:03 PM Re: ARM Alternative [Re: ns]
rlcarey Offline
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Registered: 07/16/01
Posts: 61152
Loc: Galveston, TX
The AIR table is required:

Official Interpretation

37(j) Adjustable interest rate table.

1. When table is not permitted to be disclosed. The disclosure described in ยง 1026.37(j) is required only if the interest rate may increase after consummation, either based on changes to an index or scheduled changes to the interest rate.
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#2119091 - 02/22/17 10:37 AM Re: ARM Alternative [Re: ns]
Docs Offline
100 Club

Registered: 05/13/16
Posts: 206
"The only issue with using the AIR table is that this loan is not based on an index since it's basically a lender buydown so we wouldn't want to use the AIR table."

It is true that a step-rate loan (like the "buydown" transaction you have) does not use an index to determine rate changes, but that is irrelevant. An AIR table is required by the regulations. Details for how the AIR table is to be completed are also contained in the 1026.37(j) rule and Official Interpretations.
_________________________
Just my opinion, I could be wrong. - Dennis Miller

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