Closing SBA loans keeps doors open. Call 800.340.7304 to start www.holtandmon.com Your customers have never needed capital more than they do right now. Plus you need to offset narrowing margins by increasing noninterest fee income. SBA/USDA lending is the perfect answer. And ICBA recommends just one provider to make the process hassle-free: Holtmeyer & Monson. Give customers exactly what they need, at no net cost to your bank. Small businesses count on your expertise. You can count on ours. BY WILLIAM J. SHOWALTER, CRCM SENIOR CONSULTANT, YOUNG & ASSOCIATES INC. transaction(s), so in this case, the bank would be reporting on the check being cashed by the two individuals to whom the check was made payable. Since both were present, each would have a Part I Person Involved in Transaction section completed on them, and both would be identified as “2a-Person conducting transaction on own behalf.” TILA. Q: We are reviewing a loan for which the prepaid finance charge is understated by $150 on the Closing Disclosure. However, the bank did not calculate the annual percentage rate (APR) correctly. The loan is an adjustable-rate mortgage (ARM) loan, fixed for the first 36 months, and then the rate changes every year for years four through 10, with a balloon payment in year 10. The APR was calculated based on the initial rate for the first year and then increased by the contractual rate caps each subsequent year rather than stopping at the fully indexed rate. Because of this, the APR and the finance charge (FC) are overstated. Does the bank have to reimburse the $150 or does that get negated by the overstated FC due to the way the APR was calculated? A: In calculating the APR for an ARM, the lender does not take any possible future rate changes into account — unless the loan has an initial rate that is arbitrarily set rather than according to the formula for future rate changes (a discounted or premium initial rate). In such a case, the APR is based on the initial arbitrary rate for the time it is in effect and the fully-indexed formula rate for the remaining term, taking into account any rate change caps — e.g., if the initial discount is 2.5% and there is a 2% annual change cap, then the APR would be a composite of the initial rate for the first year, initial rate plus two for the second year and initial rate plus 2.5 for the remaining years (up to year 10 in this case, when the balloon payment will come due). On the other hand, if the initial rate is computed by the formula for later rate changes (no initial discount/ premium), then the lender just uses the initial rate for the entire term of the loan with no presumed rate increases (just like for a fixedrate loan). Community Banker 17
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