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#2230845 - 02/12/20 06:08 PM Intro Rate Period
TMatt87 Offline
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TMatt87
Joined: May 2011
Posts: 1,910
Idaho
Some of our commercial notes have a statement that the rate is variable, but will not change more than once every 5 years. Does that trigger the intro rate period to be "yes" since the initial rate won't be up for a change for 5 years?
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#2230882 - 02/12/20 07:21 PM Re: Intro Rate Period TMatt87
Carolina Blue Offline
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Carolina Blue
Joined: Jul 2005
Posts: 951
Lost in a regulatory fog
Sounds like you need to be reporting 60 for intro. rate period.
1003.4(a) (26) The number of months, or proposed number of months in the case of an application, until the first date the interest rate may change after closing or account opening.

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#2230912 - 02/12/20 08:42 PM Re: Intro Rate Period TMatt87
Melissa S Offline
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Melissa S
Joined: Jan 2015
Posts: 283
Maine
Ours are the same, fixed at 'X' rate for the first 5 years, then changing every 5 years thereafter. I report 60 as the initial rate period.
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#2230944 - 02/13/20 12:27 AM Re: Intro Rate Period TMatt87
TMatt87 Offline
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TMatt87
Joined: May 2011
Posts: 1,910
Idaho
Kind of a twist. We have a 36 month loan that has the same statement, that the rate will only change once every 5 years. Since this is effectively a fixed rate note, should we report NA, or would 36 or 60 be more appropriate?
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#2230946 - 02/13/20 12:34 AM Re: Intro Rate Period TMatt87
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,548
Galveston, TX
How can you have a 36 month note with a 5 year interest rate change language?
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2230976 - 02/13/20 04:30 PM Re: Intro Rate Period TMatt87
TMatt87 Offline
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TMatt87
Joined: May 2011
Posts: 1,910
Idaho
Because our commercial credit administration doesn't think it's a big deal, even though I've brought it up for the last several years.
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#2230978 - 02/13/20 04:45 PM Re: Intro Rate Period TMatt87
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,548
Galveston, TX
Well, what does your legal counsel think of it smile Who cares about credit administration. Does such a term lock the bank into automatically extending the note?? That is what I would be afraid of.
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#2257021 - 07/21/21 05:40 PM Re: Intro Rate Period TMatt87
complyorelse Offline
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Joined: Nov 2007
Posts: 432
U.S.
We have an intro rate for our HELOCs. That rate is fixed for approximately 12 months. I say approximately because the rate will change at the beginning of the quarter following the 12 month period.

Example, we close the loan on 1/15/2021 with a rate of 1.99. The rate will change to Prime on 4/1/2022. A loan may close on 3/15/2021 with a rate of 1.99 and the rate would also adjust to Prime on 4/1/2022.

I am trying to figure out how many months we are to report for the intro rate period. Is it based on the whole months following the closing date?

With the examples provided, would the 1/15 close date be reported as 14 months and the 3/15 be reported as 12 months? Or are we to include the month it closes in so the intro rate period would be reported as 15 and 13, respectively?

The FIG states:

Enter, in numeral form, the number of months, or proposed number of months in the case of an application, until the first date the interest rate may change after closing or account opening.

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#2257028 - 07/21/21 06:54 PM Re: Intro Rate Period TMatt87
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,455
Bloomington, IN
For a Covered Loan, a Financial Institution reports the introductory rate period as the number
of months from loan closing or account opening until the first date the interest rate may change.
12 CFR 1003.4(a)(26). For example, if an Open-End Line of Credit contains an introductory or
“teaser” interest rate for two months after the date of account opening and the interest rate may
adjust after that two month period, the Financial Institution reports the number of months as
“2.” Comment 4(a)(26)-1. For a Covered Loan that includes an introductory interest rate period
measured in a unit of time other than months, the Financial Institution reports the introductory
period using an equivalent number of whole months without regard for any remainder
. For
example, if an Open-End Line of Credit contains an introductory interest rate for 50 days after
the date of account opening, after which the interest rate may adjust, the Financial Institution
reports the number of months as “1”. A Financial Institution reports “1” for any introductory
interest rate period that is less than one whole month. Comment 4(a)(26)-5.

The 1/15 date would be approximate 14.7 months and the 3/15 date would be approximately 12.7 months so I would agree with reporting 14 and 12 months as the introductory period.
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#2257034 - 07/21/21 07:13 PM Re: Intro Rate Period TMatt87
complyorelse Offline
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Joined: Nov 2007
Posts: 432
U.S.
That is great, Dan! The partial month piece is exactly what I was missing. I really appreciate it.

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#2258256 - 08/16/21 06:41 PM Re: Intro Rate Period TMatt87
Compliance NABW Offline
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Joined: Oct 2015
Posts: 1,503
@TMatt87 - Late to the party, but my thoughts on this type of loan is as follows:

It's kind of a nonsensical loan, i.e. it doesn't really make sense to have a variable rate when it can never actually adjust because the maturity happens first. You have all the Compliance requirements of an ARM (in consumer situations) for no apparent reason, lol. I think you could make an argument either way. I recommend picking either "N/A" or "36" and then support it. I would probably go with "N/A" because there is really no date when the interest rate "may change," as the loan would have matured by then.

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