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#2271345 - 06/08/22 01:38 PM ARM Rate Change Notice - What if Rate is the Same
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In the mountains
Our very first ARM rate change 210 day notice was set to drop a couple of days ago. However, nothing happened. We were told that the notice did not drop because based on the current index and margin, the rate was going to be the same as the rate on the loan right now. Is that correct?
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Lending Compliance
#2271346 - 06/08/22 01:45 PM Re: ARM Rate Change Notice - What if Rate is the Same Likes to Comply
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 80,336
Galveston, TX
Can they point to an exception for this situation found in 1026.20(d)? I do not see one.
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#2272279 - 06/29/22 06:36 PM Re: ARM Rate Change Notice - What if Rate is the Same Likes to Comply
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In the mountains
https://www.minneapolisfed.org/article/2019/arm-loan-servicing-compliance#:~:text=The%20first%20time%20the%20interest,a%20change%20to%20the%20payment

Someone share this article with me...

Rate adjustment notices—timing

While mortgage servicing includes a wide range of activities, examiners found issues involving 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 (notices are only required when the interest rate results in a change to the payment). For subsequent rate changes, Regulation Z requires that the servicer provide the notice 60 to 120 days prior to the first payment under the adjusted rate.4 Examiners noted that some banks did not send the notices far enough in advance of the change date for loans subject to these Regulation Z requirements.

Makes it sound like the initial notice doesn't always have to go out. In theory if the rate isn't changing because the estimated rate just so happens to the the same as the rate during the fixed rate period, then maybe the payment is not changing and so no initial notice is required.

Thoughts?
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#2272286 - 06/29/22 07:15 PM Re: ARM Rate Change Notice - What if Rate is the Same Likes to Comply
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 80,336
Galveston, TX
I am focusing on the regulation, regardless of what some article might say. I agree that the notice under 1026.20(c) does not have to be given if there is no change in the interest rate that results in no corresponding change in the payment amount. However, 1026.20(d) is written totally differently. The early notice is only an estimate of what might happen in the future. I see no exception in 1026.20(d) like there is in 1026.20(c).

(c) Rate adjustments with a corresponding change in payment. The creditor, assignee, or servicer of an adjustable-rate mortgage shall provide consumers with disclosures, as described in this paragraph (c), in connection with the adjustment of interest rates pursuant to the loan contract that results in a corresponding adjustment to the payment.

(d) Initial rate adjustment. The creditor, assignee, or servicer of an adjustable-rate mortgage shall provide consumers with disclosures, as described in this paragraph (d), in connection with the initial interest rate adjustment pursuant to the loan contract.
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#2272289 - 06/29/22 07:27 PM Re: ARM Rate Change Notice - What if Rate is the Same Likes to Comply
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In the mountains
I feel the same way you do, but it is hard to fight the vendor when a regulator isn't willing to put anything in writing when you contact them for guidance, yet there are articles like this floating around.

Sometimes it is exhausting to fight the compliance fight!!!

I appreciate your feedback very much!!!!
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#2274614 - 08/23/22 10:28 PM Re: ARM Rate Change Notice - What if Rate is the Same Likes to Comply
Tarhe Offline
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Joined: Nov 2006
Posts: 1,290
California
If the rate and payment change but our system did not send out the payment change notice in advance as required, should we send it now and then wait 60 days and then make the changes? We would not be precluded from making changes at all because the notice didn’t go out - but just delay it? Thank youF!

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#2274619 - 08/24/22 11:04 AM Re: ARM Rate Change Notice - What if Rate is the Same Likes to Comply
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 80,336
Galveston, TX
To do other than follow the legal obligation I think is asking for trouble. You need to figure out if you need to mitigate this error in other ways. Like if payments increased, the waiver of late fees, etc., if the customer failed to make a full payment.
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#2274645 - 08/24/22 04:26 PM Re: ARM Rate Change Notice - What if Rate is the Same Likes to Comply
Tarhe Offline
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Joined: Nov 2006
Posts: 1,290
California
Thank you!!

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