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#2170187 - 03/26/18 08:55 PM ARM Disclosure - Payment Example based on $10k
Darth HMDA, CRCM, CAMS Offline
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Darth HMDA, CRCM, CAMS
Joined: Dec 2013
Posts: 1,387
CA
Hello Everyone,

I have a question about the ARM Disclosure. We are rolling out some new ARM programs and I am working on reviewing the new disclosures. My question is this -

In the "worst case scenario" example you provide the initial interest rate, and then a parenthetical description. For example:

Initial rate of 4.125 (based on a margin of 2.00 and an index of 2.125 rounded to the nearest 0.125%)

When a discount or premium is involved how would this be displayed? The cap is based off of the initial discounted rate, so the example is based on this.

Do you have to provide the actual rate and margin figures? Or could you alternatively state:

Initial rate of 4.125 (index plus margin, minus a discount for the initial fixed period).

Trying to avoid coding monitoring all the different versions with the specific rate, margin, floor, premium etc. in the example.

Yes, I have recommended a simple uniform ARM disclosure covering all programs - but that is not the direction they have chosen to go. What do I know anyways smile

Thank you!


§1026.19(b)(2)(viii)(B)


B. The maximum interest rate and payment for a $10,000 loan originated at the initial interest rate (index value plus margin, adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure assuming the maximum periodic increases in rates and payments under the program; and the initial interest rate and payment for that loan and a statement that the periodic payment may increase or decrease substantially depending on changes in the rate.



Official Interpretation to 19(b)(2)(viii)(B)


1.Initial and maximum interest rates and payments.
The disclosure form must state the initial and maximum interest rates and payments for a $10,000 loan originated at an initial interest rate (index value plus margin adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure. (See comment 19(b)(2)-5 on revisions to the loan program disclosure.) In calculating the maximum payment under this paragraph, a creditor should assume that the interest rate increases as rapidly as possible under the loan program, and the maximum payment disclosed should reflect the amortization of the loan during this period. Thus, in a loan with 2 percentage point annual (and 5 percentage point overall) interest rate limitations or “caps,” the maximum interest rate would be 5 percentage points higher than the initial interest rate disclosed. Moreover, the loan would not reach the maximum interest rate until the fourth year because of the 2 percentage point annual rate limitations, and the maximum payment disclosed would reflect the amortization of the loan during this period. If the loan program includes a discounted or premium initial interest rate, the initial interest rate should be adjusted by the amount of the discount or premium.

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The opinions expressed are mine, do not represent the opinions of my employer, and they are not to be taken as legal advice.

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#2170202 - 03/26/18 09:21 PM Re: ARM Disclosure - Payment Example based on $10k Darth HMDA, CRCM, CAMS
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 78,925
Galveston, TX
There is no reference to the index and margin in the model language in Model H-14.

For example, on a $10,000, 30-year loan with an initial interest rate of 12.41 percent in effect in July 1996, the maximum amount that the interest rate can rise under this program is 5 percentage points, to 17.41 percent,
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#2170205 - 03/26/18 09:55 PM Re: ARM Disclosure - Payment Example based on $10k Darth HMDA, CRCM, CAMS
Darth HMDA, CRCM, CAMS Offline
Diamond Poster
Darth HMDA, CRCM, CAMS
Joined: Dec 2013
Posts: 1,387
CA
Thank you Randy. Because the commentary stated "Index value" I presumed this meant a numerical number. Appreciate you pointing this out on the model form.

I still owe you that beer haha
_________________________
The opinions expressed are mine, do not represent the opinions of my employer, and they are not to be taken as legal advice.

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