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#2268831 - 04/08/22 12:11 AM ARMs Rate Adjustment Notices - ARMS Notice Timing
pskadot671 Offline
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Joined: Jan 2013
Posts: 27
12 CFR § 1026.20 - Disclosure requirements - ARMS Notice

I'm hoping for guidance in the above reference subject and a possible referral to some reading material to this. Trying to find an easier
understanding.

I understand from the regulation in regards to the requirements for subsequent ARM disclosures, which inform borrowers of upcoming changes to their interest rates and payment amounts.

The first time the interest rate changes on covered loans, Regulation Z requires that servicers provide the notice at least 210 days but no more than 240 days prior to the due date of the first payment at the newly adjusted rate when the interest rate results in a change to the payment.

I could not see any guidance regarding the following:

- What’s the actual definition of the “next rate change date”, and what specific day should it be?

- Should it be on the anniversary date of the loan or any day after the note date?

- What day should the first monthly payment be after rate is adjusted?

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#2268834 - 04/08/22 11:54 AM Re: ARMs Rate Adjustment Notices - ARMS Notice Timing pskadot671
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,931
Galveston, TX
That will be determined by your promissory note. If this is an ARM that adjusts every 5 years, that date is going to be out five years. Without having a specific note to read, it would be impossible for us to say when that happens.

If you are using FNMA notes, then look at Paragraph 4:

4. INTEREST RATE AND MONTHLY PAYMENT CHANGES

(A) Change Dates

The initial fixed interest rate I will pay will change to an adjustable interest rate on the XXX day of XXXXX, XXXX, and the adjustable interest rate I will pay may change on that day of the month every 6th month thereafter. Each date on which my adjustable interest rate could change is called a “Change Date.”

(C) Calculation of Changes

The Note Holder will then determine the amount of the Monthly Payment that would be sufficient to repay the unpaid Principal that I am expected to owe at the Change Date on the Maturity Date at my new interest rate in substantially equal payments. The result of this calculation will be the new amount of my Monthly Payment.
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#2268876 - 04/11/22 03:17 AM Re: ARMs Rate Adjustment Notices - ARMS Notice Timing rlcarey
pskadot671 Offline
Junior Member
Joined: Jan 2013
Posts: 27
Thank you Randy. Here's more info on the questions.

This is the first notice that would be going out. According to the Reg. the timing of the notice should be between 210 to 240 days before the first payment at the new rate is due. "Before the first payment at the new rate is due" is vague? Does this mean up to the day before the first payment or the month before the next payment at the new rate? I'm trying to get a better understanding of this requirement. Or I'm I looking at this way too deep.

Here is an hypothetical example:

ARMS adjustable - 5/5
Note date September 20, 2017
Disbursement date: September 21, 2017
First payment due: November 15, 2017

First Rate changed date: October 15, 2022
Next P&I Payment/Term Change date: November 15, 2022


Date of notice sent to the customer: March 09, 2022


Question:

When calculating whether the notice was sent within the 210-240 days, does one count the days up to November 14, 2020 starting with March 09.? If the March 09, was used the it would show that the notice exceeded the 240 days?

How does one determine when the notice should be sent in advance? Is this something that can be setup in the CORE, where the notice can be printed out?

is there a guide that shows one how to calculated when the first monthly payment is due?

Thank you for your help

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#2268881 - 04/11/22 12:54 PM Re: ARMs Rate Adjustment Notices - ARMS Notice Timing pskadot671
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,931
Galveston, TX
Counting days before a payment is due based on a change in the index is not rocket science. If your next P&I payment is due on 11/15/22, just get out a calendar and count backwards 210 days. You should come up with April 19, 2022. 240 days is March 20, 2022.

If your core is set up for servicing ARM loans, then you need to get with your IT people and look at the parameters you have set in the system.

As far as when the first payment is due on a loan, that is a business decision.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2268939 - 04/11/22 10:34 PM Re: ARMs Rate Adjustment Notices - ARMS Notice Timing rlcarey
pskadot671 Offline
Junior Member
Joined: Jan 2013
Posts: 27
Thank you. Much clearer.

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