(There are also situations permitting or requiring these disclosures to be revised, but that’s a subject for another time.) The particular TRID (TILA-RESPA Integrated Disclosures) items impacted by a loan being an ARM are: • “Interest Rate” in the “Loan Terms” section — If the interest rate at consummation is not known, the rate disclosed must be the fully-indexed rate, which means the interest rate calculated using the index value and margin at the time of consummation. The lender also should disclose “Yes” to the question, “Can this amount increase after closing?” In addition, disclose the frequency of interest rate adjustments, the date when the interest rate may first adjust, the maximum interest rate, and the first date when the interest rate can reach the maximum interest rate, followed by a reference to the Adjustable Interest Rate (AIR) Table (discussed below). • “Monthly Principal & Interest Payment” in the “Loan Terms” section — If the initial periodic payment is not known because it will be based on an interest rate at consummation that is not known at the time the LE must be provided; for example, if it is based on an external index that may fluctuate before consummation, this disclosure must be based on the fully-indexed rate disclosed above. The lender also should disclose “Yes” to the question, “Can this amount increase after closing?” In addition, disclose the scheduled frequency of adjustments to the periodic principal and interest payment, the due date of the first adjusted principal and interest payment, the maximum possible periodic principal and interest payment, and the date when the periodic principal and interest payment may first equal the maximum principal and interest payment. • “Principal & Interest” payment in the “Projected Payments” section — The table of payments (principal and interest, mortgage insurance, etc.) will include more than one column due to the possible (projected) changes in the interest rate, up to a maximum of four columns. The maximum principal and interest payment amounts (in each column) are determined by assuming that the interest rate in effect throughout the loan term is the maximum possible interest rate, and the minimum amounts are determined by assuming that the interest rate in effect throughout the loan term is the minimum possible interest rate. If the ARM has a negative amortization feature, the maximum payment amounts must reflect this feature, as spelled out in Regulation Z. • “Adjustable Interest Rate (AIR) Table” — An ARM must disclose a separate table in the “Closing Cost Details” section on the LE and the “Additional Information About This Loan” section on the CD, under the heading “Adjustable Interest Rate (AIR) Table,” that contains specified information about the index and margin, increases in the interest rate, initial interest rate, minimum and maximum interest rate, frequency of adjustments, and limits on interest rate changes. • “Annual Percentage Rate (APR)” and “Total Interest Percentage (TIP)” in the “Comparisons” section on the LE and the Loan Calculations section on the CD — Calculation of both of these values must account for variations in the interest rate permitted for the ARM. Interest rate/payment change notices The creditor, assignee, or servicer of an ARM secured by a borrower’s principal dwelling must provide consumers with William J. Showalter, CRCM, CRP, is a Senior Consultant with Young & Associates, Inc. (www.younginc.com), with over 35 years of experience in compliance consulting, advising and assisting financial institutions on consumer compliance and compliance management issues. He also develops and conducts compliance training programs for individual banks and their trade associations and has authored or co-authored numerous compliance publications and articles. Bill can be reached at (330) 678-0524 or wshowalter@younginc.com. written notices in connection with the adjustment of interest rates in accordance with the loan contract that results in a corresponding adjustment to the payment. These notices must be separate from any other disclosures or notices. There are exemptions for the following: ARMs with a term of one year or less; first interest rate adjustment to an ARM if the first payment at the adjusted level is due within 210 days after consummation and the new interest rate disclosed at consummation was not an estimate; or when the lender/servicer is subject to the Fair Debt Collection Practices Act (FDCPA) for the particular loan and the customer has sent a notice to cease communications. The content for these change notices is spelled out in Regulation Z, and the timing depends on whether the rate/payment change is the first to occur for the ARM loan or a subsequent change. The initial adjustment notice must be provided to consumers at least 210 — but no more than 240 — days before the first payment at the adjusted level is due. If the first payment at the adjusted level is due within the first 210 days after consummation, the disclosures must be provided at consummation. All subsequent adjustment notices generally must be provided to consumers at least 60 — but no more than 120 — days before the first payment at the adjusted level is due. The disclosures must be provided to consumers at least 25 — but no more than 120 — days before the first payment at the adjusted level is due for ARMs with uniformly scheduled interest rate adjustments occurring every 60 days or more frequently and for ARMs originated prior to Jan. 10, 2015, in which the loan contract requires the adjusted interest rate and payment to be calculated based on the index figure available as of a date that is less than 45 days before the adjustment date. Periodic statements If your bank has taken advantage of the “coupon book” exception from periodic statements for mortgage loans with fixed rates, you will have to begin producing periodic statements when you begin originating ARMs. Or you will need to expand your statement output as more of the bank’s loan production shifts to ARMs from fixed-rate loans (if you still want to use the coupon books exception for your fixed-rate lending). Conclusion If your institution is like many community banks and has not been making ARMs for some time, you likely have some work to do to ramp ARM lending back up. Systems and disclosures need to be updated and/or activated. Disclosures need to be procured or prepared. Staff needs to be trained, at least some refresher training. Good luck re-ARMing up. 11 ISSUE 5 | 2022
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