EFFECTIVE DATE FOR NEW ARM NOTICES

Effective on January 10, 2014 § 1026.20 of Regulation Z requires that when a rate change accompanied by a payment change occurs on an ARM a notice must be sent to the consumer at least 60, but no more than 120, days before the first payment at the adjusted level is due (§ 1026.20(c)). An additional notice is required in connection with the initial interest rate adjustment provided to consumers. That notice must be provided at least 210, but no more than 240, days before the first payment at the adjusted level is due (§ 1026.20(d)).

The new notice requirements apply to both new and existing ARM loans. Applying the new requirements to existing loans is not an exact science. Since the § 1026.20(c) notice must be provided to the consumer between 60 and 120 days before the first payment is due, servicers do not have to provide the § 1026.20(c) notice when such payment is due 25 to 59 days from the January 10th effective date. Under the existing rule notices are required 25 to 120 days before the first payment is due. So the servicer will already have provided the § 1026.20(c) notice required by the current rule when the payment is due 24 or fewer days from the January 10, 2014, effective date. It appears the first § 1026.20(c) notice for an existing account is required for the first rate adjustment due on or after March 11, 2014.

Because the notice required by § 1026.20(d) must be provided to the consumer between 210 and 240 days before the first payment is due after the initial interest rate adjustment, servicers will not be required to provide the § 1026.20(d) notice when such payment is due 209 or fewer days from the effective date. It appears the first § 1026.20(d) notice for an existing account is required on or after August 8, 2014.

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