Yes, you would need early ARM disclosures and initial disclosures. You also need your annual disclosure, however, there is no requirement to notify the customer each time the interest rate changes. That would be done in the annual disclosure. The possibility of negative amortization will have to be addressed.
IMHO - I'm not sure with all the focus on subprime loans and these types of non-conventional pricing scenarios, why a bank would want to create this type of product. Disclosure and servicing is going to be vastly different than a standard mortgage and will be fraught with potential pitfalls.
I'm also not sure with the public focus on the dangers of these types of hybrid products what type of market you expect to reach. I would be suggesting to management that a review of the product marketing analysis be performed to make sure that the cost benefit analysis properly takes into consideration all the true start up and development costs this product is going to require.
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