Isn't my thinking correct?
For fixed rate mortgages, the termination date (78%) is based on the original value of the property and the initial amortization schedule, irrespective of the outstanding balance on that date. For adjustable rate mortgages, the termination date (78%) is based on the amortization schedule "then in effect" which could be an initial amortization done at closing, but only if no change has yet occurred. A change would occur at each "change date" when a new interest rate and payment goes into effect - thus also changing the amortization. For automatic termination, the servicer would recalculate to see if the required LTV is scheduled to be reached before the next change date, using the new payment. If so, that date would be the "scheduled date".

For an ARM loan, any PMI requirement must automatically terminate with respect to payments for that insurance made by the mortgagor when the principal balance of the mortgage loan, based on the amortization schedule and irrespective of the outstanding balance, is first schedule to reach 78% of the original value of the property securing the loan if n that date the mortgagor is current on the payments by the terms if the loan. If the mortgagor is not current on that date, then the PMI requirements must automatically terminate onthe first day of the first month beginning after the date the mortgage becomes current.

So, you should have a process in place to review all of your ARM loans and their applicable LTV and cancel the PMI after the customer has made their payment to take them UNDER the 78% LTV.

What about the technical corrections published after the rule was published emphasing to use "amortization then in effect" for ARMs?

Yes, you would utilize the amortization in affect at that time but your payment schedule and amoritization should be based on the "worst case scenario" meaning the loan would be fully indexed as soon as applically possible.

Complianceman, help me out. We are just gearing up to offer PMI on ARMS. Despite reading and rereading the requirements, I am still confused. Is the initial TIL based upon the "worst case scenario", fully indexed amortization, when the loan would reach 78% LTV...?

But then over the course of the loan, we would have to look at each rate and payment change date for the point in time when the balance will actually go below the 78% LTV and cancel at that time?

Do we also have to send an annual statement notifying them of that date, based upon the new rate and payment schedule?