Hello everyone,

I was hoping I could get everyone's opinion on this. I am attempting to validate the APR on a Construction to Perm ARM Loan.

When calculating the APR, I dont know what to use for the last payment stream. The example is this:

12 month construction - interest only - payable on amount drawn - I know what to enter here

6 year fixed intro rate - I know what to enter here for the payment stream.

23 year remaining period. - This is the payment stream I am having trouble with. I am determining the remaining principal balance based on the introductory fixed rate. I am then calculating the remaining payment for the payment stream. Which of the following two scenarios is correct?

- Calculate the payment based on the floor rate in the note?

- Calculate the payment based on the index plus margin at the time of consummation?

I cannot find where guidance on this in Appendix D - if there is any guidance or citation you can point to I would greatly appreciate it. Thank you!!!

Is the beginning of the permanent phase a discount or premium to the index plus margin at closing (or within the lookback period)? Does your LOS not give you an amortization schedule to support the APR it produces?

Appendix D assumes you know the payment schedule for the end loan. Answers to questions like yours are covered in Section 1026.17(c)(1), OIs 8 - 10.

Thank you both! Randy - the initial rate was a premium actually. Unfortunately, there wasn't a schedule in the file (another issue).

Richard! Thank you!! That is exactly the citation I was trying to find!

Comment 17(c)(1)-10.i

i. When creditors use an initial interest rate that is not calculated using the index or formula for later rate adjustments, the disclosures should reflect a composite annual percentage rate based on the initial rate for as long as it is charged and, for the remainder of the term, the rate that would have been applied using the index or formula at the time of consummation. The rate at consummation need not be used if a contract provides for a delay in the implementation of changes in an index value. For example, if the contract specifies that rate changes are based on the index value in effect 45 days before the change date, creditors may use any index value in effect during the 45 day period before consummation in calculating a composite annual percentage rate.

Yes, and possibly a violation of Section 1026.25(a). "Evidence of compliance" includes more than "copies of disclosures given." Evidence of compliance with Section 1026.22(a) and Appendix J, for example, means you must be able to "show your work" (math and data) if the disclosed APR is challenged. Also, you cannot prove the accuracy of disclosed FCs without showing the payment schedules used in the calculation.