We have been notified that the current index that we are using for a portion of our older ARM loans will no longer be available. Our Note states that "If the index ceases to be made available by the publisher or by any successor to the publisher, the Note Holder will set the Note interest rate by using a comparable index".

Has anyone had this issue and if so, how did you notify your borrowers? We would like to incorporate the changes in the annual ARM rate/payment change notification letter for each affected borrower. What type of due diligence in determining a "comparable index" was retained for examiner review?

Any thought or opinions are appreciated.

You might be in rarified air. I am not aware that many indexes have ever been eliminated. I know that one cost of funds index just disappear without warning in May and of course LIBOR is coming up. You might want to contact your EIC and ask them. I would think it would require some sort of historical comparison of the movement of the indexes.

We had an investor recommend we notify our customers about LIBOR going away, even though it's not happening until 2021. They even provided a nice disclosure we could use. Our note has similar verbal as above, so do we need to redisclose to these borrowers? It also seems premature and who knows if it will really go away.....

Oh - LIBOR is going away no doubt. Any disclosure now is purely a business decision.

We are also having issues with the sudden discontinuation of the MIRS rate from FFIEC. LIBOR I've seen a lot of guidance on, and they gave a few years warning. MIRS was cutoff with no warning. Anyone else dealing with this, and willing to share how they are addressing it?

I don't know if this will help or not, but we had used Seattle FHLB rates for sometime, which then went away when they became part of the Des Moines FHLB. Fortunately for us, the indexes were very very similar between the two. We notified our borrowers that one index was being discontinued and per the terms of the Note a new substantially similar note was being substituted.

What you might do is find an index which still exists and has historically moved at the same rate as the disappearing index. Even if you need to make adjustments (minus .25% or something) to the index before adding/subtracting a margin, you might be able to do that.

My understanding is that changing the margin puts you in some grey legal area. At least for the Notes we have, they say we may change to a comparable index. Nothing about being able to change the margin (even though it might make sense). We were able to find a comparable index (weekly average of 30 yr FRM put out by Freddie) and are working on getting out the notice before the next rate change dates. Timing is tight.

Based on the crickets we've heard when we've reached out about this, I have a sneaking suspicion that there are several banks out there that used, or inherited Notes from an acquisition that used, this index and don't realize that it no longer exists. We only noted it due to an eagle eye employee. I'm curious as to what effect it will have down the road for those not taking action. Especially as rates have dropped pretty significantly since the last MIRS index came out.

We used to use the Office of Thrift Supervisor Cost of Funds Index, when that index was discontinued we switched to the FHLB of San Francisco 11th District COF index because that was the one that closely mirrored the OTS COF. Now that they have announced they will not longer be publishing a COF index we are researching indices again.

We researched the different indices and did a graph over the past 5 years to see the historical monthly changes. This is what we keep for examine purposes. We notified all of our borrowers with loans tied to that index of the change as soon as the decision was made via a small flyer type notice. We thought about putting an insert in the change notice but with some adjusting 3-5 years out we didn't what to have to monitor them for the next several years.

Resurrecting this thread because we're in the same boat with the MIRS. Like another post said we only discovered it because of an eagle eye employee.

Has anyone figured out the disclosure notice requirements? I've sent the question out to our consultants. One said that there's nothing in Reg Z that defines the notification requirements for changing indexes due to discontinuation. They believed that following the rate change notification requirements would suffice due to the requirement to identify the index used to determine the rate combined with the verbiage in the notes that say the bank may change the index the rate is based on if it is discontinued or no longer available.

This is a true statement, as there is nothing in 1026.20 that would require the bank to send such a notice. However, I would think that as a common courtesy, a bank might send a simple letter to impacted customers notifying them of the change.

Also, for those of you dealing with the discontinuation of MIRS, you might want to review this:

https://www.fhfa.gov/DataTools/Downloads/Pages/Monthly-Interest-Rate-Data.aspx

Thank you! I appreciate that.

Banks that used the MIRS, will you used the PMMS+ for the existing loans or used a new index for new and existing loans? Curious, what index did you switch to? I found a website that listed a ARM indexes, but most of them have gone away. Website did a horrible job staying up to date. I'm having a hard time finding a comparable to the MIRS.

We did switch to PMMS+ for existing loans. FHFA is pretty clear on their website that this index shouldn't be used for new loans. From the link Randy provided above:

"PMMS+ is intended to be used in lieu of the discontinued index for currently outstanding loans, and not as a reference rate on newly-originated adjustable-rate mortgages."

Edit: Re-reading your post it looks like you already knew that. Prior to PMMS+ coming out, we were all ready to switch to PMMS on existing. We no longer used the MIRS index, so it didn't affect our existing loans.

I'm going to bump this thread to see if anyone else has any input. We are in the same situation as Dodge.
Looking for a comparable to MIRS...

For new originations? I'd suggest looking at Freddie's PMMS: 30 YR FRM. http://www.freddiemac.com/pmms/

It says in the guidance listed above, "This designation is not intended to apply to newly-originated loans and FHFA does not endorse the use of PMMS+ or any other PMMS Index as a reference on newly-originated ARM loans."

So this statement is confusing us...

It mean you can use it for a replacement index for ARMs currently on the books but you aren't supposed to use it on new loans going forward.

Exactly. So we are stuck on which index to use for new loans.

Not a Regulatory Item, but the Promissory Note will often describe your obligations as far as sending notice to customers when the index changes. In other words, the Note often requires a notice, though nothing in Reg. Z does.