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#919318 - 03/11/08 01:37 PM Changing from 360 to 365 compliance issues
Piano Man Offline
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Piano Man
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Our bank currently uses a 360 accrual method. If we changed to 365 would we have to disclose anything the the customers that already have their loans booked? Are there any other compliance issues that I sould be aware of if we were to change? Please help!
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Lending Compliance
#919482 - 03/11/08 03:23 PM Re: Changing from 360 to 365 compliance issues Piano Man
Graham Priest Offline
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Lexington, Ky

You need to think through this. Changing from 360 ( 365/360) to 365 ( 365/365) is to the benefit of the bank and the bank earns less, I think! Usually management wants to increase income. Maybe your calculation is different, but 365/360 gives the stated interest rate a bump and this calculation is probably spelled out in your loan contract.

Your biggest concern is home equity loans. A bank can make changes in a home equity that will unequivocally benefit the borrower throughout the remianing of the term of the plan.

The bank cannot increase any fee or impose a new fee after the home equity plan has been opened. However, the prohibition against changing terms does not apply to insigificant changes. See commentary reg z 226.5b(f)(3)(v).

Other change in terms for loans are permissible if the bank gives a 30 day notice of the change in terms. I cannot find the support at this time, but it is Reg Z.

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#919635 - 03/11/08 04:39 PM Re: Changing from 360 to 365 compliance issues Graham Priest
rlcarey Online
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Actually, if you are charging 365/360 and moving to 365/365 - it would benefit the customer.
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#920374 - 03/12/08 12:00 PM Re: Changing from 360 to 365 compliance issues Piano Man
Richard Insley Online
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This is certainly a strange idea but, as Randy advises, is always in the borrower's favor. Even though there may be no legal requirement for "disclosure", I'd nevertheless consider "notification" by whatever means is convenient. Customers who recheck their interest charges will notice the difference and may request an explanation. Time is money and these inquiries will be a waste of your staff's time.
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#936057 - 04/03/08 08:47 PM Re: Changing from 360 to 365 compliance issues Richard Insley
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Is the decision to use actual/360 vs. actual/365 mainly an accounting issue? We use actual/360 on our commercial and actual/365 on consumer but I've gotten a question on why commercial is 360. I ran this by one of our operational folks and they didn't know.

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#936109 - 04/03/08 10:28 PM Re: Changing from 360 to 365 compliance issues Jan94
David Dickinson Offline
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It's a profit issue. Actual/360 yield a slightly higher interest return. Your APR's will be off on some loans if you did this on consumer loans, so you leave it at 365. But commercial loans don't have an APR, so there's no accuracy risk. Most borrowers don't know to look for this so you get away with cheating (yep, I used that word on purpose) them out of 5 days extra interest every year.
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#936162 - 04/04/08 01:32 AM Re: Changing from 360 to 365 compliance issues David Dickinson
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David - thank you for your response. In this case, I've been told that the question originated from a commercial customer who apparently did notice the difference. I'd also been told that some states require 365 on consumer loans so if that is the case in the customer's state, then it may be easy to explain why commercial is 360 and consumer is 365, but I haven't verified that.

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#2291985 - 12/27/23 09:31 PM Re: Changing from 360 to 365 compliance issues Piano Man
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Resurrecting a super old thread, but the title to the question basically fits and I don't see anything similar in the TRID forum.

If a Bank is using Actual/365, it creates a situation where the interest amount (and payment) changes each month. Would this be considered a Change in Payment for purposes of the LE/CD? Do you need to have an AP table because the interest amount changes even though the rate itself is fixed?

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#2291990 - 12/27/23 10:04 PM Re: Changing from 360 to 365 compliance issues Piano Man
rainman Offline
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As far as I'm aware, for most LOS and servicing systems, using actual/365 does not require payment changes every month. The payment is calculated based on assumed payments made on the same day each month. That payment amount remains constant. Interest is charged based on the principal balance, multiplied by the interest rate, multiplied by # of days that balance is outstanding, divided by 365. No payment change is required.
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#2291994 - 12/28/23 11:56 AM Re: Changing from 360 to 365 compliance issues rainman
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Originally Posted by rainman
As far as I'm aware, for most LOS and servicing systems, using actual/365 does not require payment changes every month. The payment is calculated based on assumed payments made on the same day each month. That payment amount remains constant. Interest is charged based on the principal balance, multiplied by the interest rate, multiplied by # of days that balance is outstanding, divided by 365. No payment change is required.

So, generally speaking, February wouldn't have a lower payment because it's only 28 days?

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#2291995 - 12/28/23 11:57 AM Re: Changing from 360 to 365 compliance issues Piano Man
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What if it does have a different amount - would it warrant an AP table, etc.? I wouldn't think that the computation method would make a difference on that, but, technically, payments could increase and it's not due to a change in the interest rate.

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#2291997 - 12/28/23 12:08 PM Re: Changing from 360 to 365 compliance issues Piano Man
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On an actual/365 accrual basis, the amortization schedule is based on a fixed monthly payment that will full amortize the loan over the term taking into account that the amount of the monthly payment that goes to accrued interest changes according to the number of days in the month. There is no change in payment amounts over the term of the loan, unless it is an ARM and the interest rate adjusts.
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#2292000 - 12/28/23 02:13 PM Re: Changing from 360 to 365 compliance issues rlcarey
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Originally Posted by rlcarey
On an actual/365 accrual basis, the amortization schedule is based on a fixed monthly payment that will full amortize the loan over the term taking into account that the amount of the monthly payment that goes to accrued interest changes according to the number of days in the month. There is no change in payment amounts over the term of the loan, unless it is an ARM and the interest rate adjusts.

What if it's an interest only loan though?

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#2292002 - 12/28/23 02:35 PM Re: Changing from 360 to 365 compliance issues Piano Man
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On an interest only loan, the variations in payments can be ignored from a TRID standpoint.

1026.17(c)(3) The creditor may disregard the effects of the following in making calculations and disclosures.

(i) That payments must be collected in whole cents.

(ii) That dates of scheduled payments and advances may be changed because the scheduled date is not a business day.

(iii) That months have different numbers of days.

(iv) The occurrence of leap year.
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#2292017 - 12/28/23 04:28 PM Re: Changing from 360 to 365 compliance issues rlcarey
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Originally Posted by rlcarey
On an interest only loan, the variations in payments can be ignored from a TRID standpoint.

1026.17(c)(3) The creditor may disregard the effects of the following in making calculations and disclosures.

(i) That payments must be collected in whole cents.

(ii) That dates of scheduled payments and advances may be changed because the scheduled date is not a business day.

(iii) That months have different numbers of days.

(iv) The occurrence of leap year.

THAT's the part of Reg. Z I was looking for. I knew a statement like that existed, just couldn't remember where I saw it. Thank you!

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