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ARM Rate Change Notices

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  • #4974
    rcooper
    Keymaster

    Originally posted in Compliance Masters Group Forum by GVICK:

    Example: We have an ARM that closed 6/6/11 annual adjustable rate at NYP. The initial first rate change date passed on 6/6/12 with no change in rate. Since the rate hasn’t changed yet does this loan customer still need to receive the first 240 day rate change notice under the new rules since the actual rate hasn’t changed because the index hasn’t changed or do we ignore the 6/6/12 date since the index hasn’t changed?

    #4975
    rcooper
    Keymaster

    Your specific situation isn’t addressed in the regulation or commentary. 1026.20(d) does state:
    Initial rate adjustment. The creditor, assignee, or servicer of an adjustable-rate mortgage shall provide consumers with disclosures, as described in this paragraph (d), in connection with the initial interest rate adjustment pursuant to the loan contract.

    It seems to me your initial rate adjustment per your contract has already passed before the effective date and as a result you wouldn’t need to send the 1026.20(d) notice.

    Response by jholzknecht:
    Let me add to Robin’s answer. The initial rate adjustment is an estimate. The estimate is sent 210 to 240 days prior to the first scheduled payment at a new level. At the time you prepare the initial notice you have no idea if the rate will actually change or not, but you provide the estimate anyway.

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