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#288487 - 12/13/04 11:30 PM Construction ARM
juliad Offline
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juliad
Joined: Sep 2002
Posts: 445
Dallas, TX
I think I know the answer, but wanted to get some expert opinions.

More and more we have construction loans that require a longer than 1 year term (palatial homes take longer to build ) Is it even possible to service an interest only ARM (subsequent disclosures) where the rate changes with changes in the index? I'm thinking no - the rate changes and the next the payment inevitably changes as a result and there's no way to ensure the subsequent notice goes out within an adequate time period with every rate change.

But suppose we figure out a way to make that happen. What would the historical example in the ARM program reflect (we use option B, not the 15 year example)? The 30 day interest payment at the intital rate and at the maximum rate?

Maybe I'm just Monday brain-dead, but I can't see how this can work - especially the subsequent disclosures...I'm coming around on the initial ones.

Do any of you offer an interest only construction ARM? Because my lenders insist that all of our competitors do....
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#288488 - 12/14/04 04:51 AM Re: Construction ARM
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,277
Could you offer this as two loans - an interest only construction loan that converts to a traditional ARM at maturity open completion of the construction?
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#288489 - 12/14/04 01:13 PM Re: Construction ARM
Anonymous
Unregistered

I have posted the same question, because of the same problem. Larger homes take longer than 12 months to build! I checked with ABA, attorneys, BOL and other banks. No one has a >12months adjustable, interest only construction loan disclosure. Everyone's response is that they make the loan for 12 months and then renew.

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#288490 - 12/14/04 05:47 PM Re: Construction ARM
corkygirl Offline
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Joined: Sep 2004
Posts: 4,241
middle of the country
My bank is located in a wealthy area and we often have construction loans for big $$$. We do the construction line for 12 months and renew if and when necessary. That also helps the officer keep track of the status of the construction, especially with a "spec" home.
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#288491 - 12/15/04 05:53 PM Re: Construction ARM
juliad Offline
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juliad
Joined: Sep 2002
Posts: 445
Dallas, TX
Quote:

Could you offer this as two loans - an interest only construction loan that converts to a traditional ARM at maturity open completion of the construction?




It's actually that due to the size of the home, the construction takes longer than 12 months - 18 months, for example. I agree with other posters that generally it's best to do the loan for 12 months and renew as needed. However, I have some lenders who refuse to do it this way (excuse me? - we have a violation if you don't!! ).

Also, has anyone ever been questioned about this practice of limiting the term and then renewing? It seems to me that it could be considered as intentionally avoiding ARM disclosure requirements?
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#288492 - 01/06/05 09:15 PM Re: Construction ARM
Anonymous
Unregistered

I just got a message that we did an 18 month, interest only, Prime based ARM. Our system won't calculate an ARM disclosure for this interest rate product. Has anyone found a way to do this?

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#288493 - 02/25/05 04:45 PM Re: Construction ARM
Anonymous
Unregistered

I have browsed and seen that a number of financial institutions offer interest only and other short term ARM loans. My bank is considering this. Does anyone know of any software that is for preparing and calculating ARM early disclosures? I've been to Banker's Systems 'site and seen they have "Arta" software, but would like to compare with other software sources, if anyone knows of others. Also, if anyone who uses Arta has any pros/cons to offer, this would also be appreciated. Thanks!

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#288494 - 02/25/05 07:24 PM Re: Construction ARM
Anonymous
Unregistered

Quote:

Also, has anyone ever been questioned about this practice of limiting the term and then renewing? It seems to me that it could be considered as intentionally avoiding ARM disclosure requirements?




I think that you're touching on something here that is indeed more dangerous than most perceive. If you have every intention of renewing, knowing full well that the term is going to be greater than 12 months, you are avoiding required disclosures and procedures. This practice could be called into question and should be.

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#288495 - 03/01/05 02:03 PM Re: Construction ARM
Anonymous
Unregistered

Any "takers" on my software inquiry?

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