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#32320 - 09/11/02 09:36 PM ARM Loans
Anonymous
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Are all ARM Loans Considered irregular loans for the .25 tolerance of APR?

Thank you

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#32321 - 09/11/02 09:43 PM Re: ARM Loans
Dan Persfull Offline
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I just did some research on this for a friend of my at another "institution" and the answer is no. If you will post your email address, or email me at dpersfull@peoples-bank.com, I will send you the cites. My email to him is lenghty and would take up to much room on the post.
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#32322 - 09/11/02 09:53 PM Re: ARM Loans
rlcarey Offline
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You don't have to go into too long of an explanation. If you look at the commentary in 226.22(a)(3) under Irregular Transactions it indicates:

It does not apply, however, to loans with variable rate features where the initial disclosures are based on a regular amortization schedule over the life of the loan, even though payments may later change because of the variable rate feature.
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#32323 - 09/11/02 10:01 PM Re: ARM Loans
Dan Persfull Offline
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Dan Persfull
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Also look at the Reg. Z Commentary on 226.17 for what constitutes an irregular transaction.
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#32324 - 09/11/02 10:07 PM Re: ARM Loans
rlcarey Offline
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However, the irregular payment definition covered in 226.17 does not have any bearing on whether the loan qualifies as a irregular transaction which allows an increase in the APR tolerence to .25%.
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#32325 - 09/11/02 10:14 PM Re: ARM Loans
Dan Persfull Offline
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I read this that if the intitial rate was discounted, or had a premium, then the "irregualr transaction" rule would apply. Did I interpret it wrong? Dan
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#32326 - 09/11/02 10:28 PM Re: ARM Loans
rlcarey Offline
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I stand corrected - after further review, a discounted variable rate transaction is considered an irregular transaction for tolerence purposes. So I guess the answer to the original question would be it depends on whether the original rate was at a discount or premium. Thanks Dan - that's why I love this stuff!!!!
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#32327 - 09/12/02 10:25 AM Re: ARM Loans
Richard Insley Online
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The concept of "irregular" transactions was created because certain creditors were using the Board's APR tables, "Volume I" and "Volume II." Volume I can handle loans with a single advance and no more than the following irregularities in the payment schedule: odd first period, odd first payment amount, odd final payment amount. Any loan with terms that are more complex requires the use of Volume II. The .125% and .25% tolerances are tied directly to these two levels of calculation complexity.

ARMs priced at par (no premium and no discount), are "regular" because you must disclose a single P+I level (with the possible exception of a slightly odd final payment to make up for rounding differences earlier in the schedule.)

When premium or discount pricing is added, you must disclose multiple streams of P+I payments to show the steps up or down in the rate/payment. Because the extra stream(s) of P+I payments exceeds the "odd first or final payment" threshhold, premium and discounted ARMs become "irregular", allowing more tolerance.

If you want generalizations for ARMS, you have:
- .125% tolerance applies to par-priced ARMS with no PMI renewal premiums.
- .25% tolerance applies to everything else.
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#32328 - 09/12/02 01:50 PM Re: ARM Loans
Dan Persfull Offline
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rclarey, over the years I've stood corrected so many times, that I don't know if I could stand anymore. I love this forum also, it has been a great help.
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#32329 - 09/16/02 09:59 PM Re: ARM Loans
Anonymous
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I thought premium arms acted as fixed rated loans on the TIL?

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#32330 - 09/17/02 12:03 AM Re: ARM Loans
Richard Insley Online
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Premium ARMs are the mirror image of discounted ARMs. As the introductory rate gives way to formula-driven rates, payments will fall instead of rise.
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#32331 - 09/17/02 02:46 PM Re: ARM Loans
Anonymous
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So the payments in the payment stream will actually show a payment going down rather than up and a lower APR than the start rate.

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#32332 - 09/17/02 02:49 PM Re: ARM Loans
rlcarey Offline
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That would be correct.
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#32333 - 09/17/02 08:53 PM Re: ARM Loans
Richard Insley Online
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It's also possible to have the payments going down but the APR goes up because of PMI and lots of PPFCs.
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#32334 - 09/20/02 03:36 PM Re: ARM Loans
Colleen Offline
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Regarding tolerances of .25 on irregular loans, where does the $100.00 cap for understating the finance charge come in to play. Also, where can I get a "user friendly calculator" to test our system's apr calculations. What would be the cost of this calculator.

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#32335 - 09/20/02 05:48 PM Re: ARM Loans
Dave M_TCA Offline
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Dave M_TCA
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Wherever my most benevolent em...
Colleen, the best calculator that I've seen is from the business in the post right above yours.
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#32336 - 09/20/02 06:25 PM Re: ARM Loans
Lestie G Offline

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Near the Land of Enchantment
I'll second that! I got one at ABA compliance school long ago. I still use it all the time. It's passed many OCC reviews of it's calculations.
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#32337 - 09/21/02 12:10 AM Re: ARM Loans
Richard Insley Online
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Richard Insley
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Toano, VA
Thanks David & Lisa for the testimonials. I've distributed roughly 4,000 during the past 18 years & have helped countless bankers stay out of TIL trouble. Compliments of the Massachusetts Bankers Assn's annual Compliance Academy, another batch of calculators are on their way into action this week!
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