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#2227006 - 12/09/19 05:27 PM ARM Loans Modifying Rates: Discount Feature?
iliniyak Offline
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Posts: 285
I have researched this through past posts and the regulation (and formulated my own opinion), but have not seen anything concrete regarding the following:

We are doing a rate modification on an existing ARM loan. This is the only thing we are modifying. The new rate will be less than the index + margin.

Does this constitute "Presence of a Discount Feature" (1026.10(b)(2)(H))?

If yes, does the initial note was done at a discount (we set our own initial rate), was the "Presence of a Discount Feature" already disclosed?

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#2227019 - 12/09/19 06:44 PM Re: ARM Loans Modifying Rates: Discount Feature? iliniyak
rlcarey Offline
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rlcarey
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Galveston, TX
Bear with me - what does a discounted initial interest rate and a modification have in common? Where are you going with this? Are you asking if this would be treated as a refinance under 1026.20(a)?
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#2227023 - 12/09/19 07:25 PM Re: ARM Loans Modifying Rates: Discount Feature? rlcarey
iliniyak Offline
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Yes RL; would having a new rate that is lower than the disclosed Index + Margin constitute an additional "Discount Feature", which would trigger a separate program and thus a Refinance would be needed?

I may be overthinking it or being too literal with the term "Discount Feature".

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#2227028 - 12/09/19 07:41 PM Re: ARM Loans Modifying Rates: Discount Feature? iliniyak
rlcarey Offline
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rlcarey
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Galveston, TX
Are you changing any other variable rate feature - time of adjustments, caps, floors, index, margin, etc. or are you just lowering the rate until the next scheduled rate change?
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#2227041 - 12/09/19 08:16 PM Re: ARM Loans Modifying Rates: Discount Feature? iliniyak
iliniyak Offline
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No. The other variable rate features are remaining as-is.

My opinion is to go with 1026.20(a)(2) as a catch-all - but was held up on how far "Presence of a Discount Feature" goes in constituting a new program.

Perhaps I am overthinking the two pieces of regulation as contradictory.

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#2227042 - 12/09/19 08:26 PM Re: ARM Loans Modifying Rates: Discount Feature? iliniyak
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Well, this is still sort of a grey area as to what "Adds a variable-rate feature to the obligation" really means. There is really no specific additional guidance on this subject. I could go either way and usually treat any change to an ARM as a refinance because of the ambiguity.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2227047 - 12/09/19 09:18 PM Re: ARM Loans Modifying Rates: Discount Feature? rlcarey
iliniyak Offline
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Joined: Jan 2008
Posts: 285
Thank you for your input

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