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#38267 - 10/22/02 06:31 PM ARMS - Periodic Rate Caps
OnTheEdge Offline
Diamond Poster
Joined: Apr 2002
Posts: 1,677
SmallTown, USA
One CEO is wanting to discontinue disclosing periodic rate caps. (We currently use 2%). Can we do this? I've read the commentary about stating these as a range on the program disclosure, but I would think the loan document would have to be specific.
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Lending Compliance
#38268 - 10/22/02 06:41 PM Re: ARMS - Periodic Rate Caps
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
If you have them, the specifics would have to be disclosed in the loan documents. Also, the commentary to 226.19(b)(2) indicates that:

"separate loan programs would exist based on differences in any of the following loan features:

A. The index or other formula used to calculate interest rate adjustments.

B. The rules relating to changes in the index value, interest rate, payments, and loan balance.

C. The presence or absence of, and the amount of, rate or payment caps."

So if you have programs with different caps, you would need multiple early disclosures.
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#38269 - 10/22/02 06:42 PM Re: ARMS - Periodic Rate Caps
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Yes. However, your initial ARM program disclsoure would have to allude to the fact that there are no perioidic rate caps.

Supplement I, 226.19: Certain Residential Mortgage and Variable-Rate Transactions (01/01/02)

2. Variable-rate loan program defined.

i. Generally, if the identification, the presence or absence, or the exact value of a loan feature must be disclosed under this section, variable-rate loans that differ as to such features constitute separate loan programs. For example, separate loan programs would exist based on differences in any of the following loan features:

A. The index or other formula used to calculate interest rate adjustments.

B. The rules relating to changes in the index value, interest rate, payments, and loan balance.

C. The presence or absence of, and the amount of, rate or payment caps.

D. The presence of a demand feature.

E. The possibility of negative amortization.

F. The possibility of interest rate carry-over.

G. The frequency of interest rate and payment adjustments.

H. The presence of a discount feature.

I. In addition, if a loan feature must be taken into account in preparing the disclosures required by §226.19(b)(2)(viii), variable-rate loans that differ as to that feature constitute separate programs under §226.19(b)(2).


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#38270 - 10/22/02 06:46 PM Re: ARMS - Periodic Rate Caps
OnTheEdge Offline
Diamond Poster
Joined: Apr 2002
Posts: 1,677
SmallTown, USA
Thanks. It's great to get input from other compliance folks. I'm pretty much a one-woman show around here, so it's nice to have someone to bounce this stuff off.
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The opinions expressed are mine and do not necessarily reflect those of my employer.

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#38271 - 10/23/02 01:35 PM Re: ARMS - Periodic Rate Caps
Anonymous
Unregistered

Just another angle to consider. These loans would probably not be saleable on the secondary market or to other investors.

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