[chichi63]

The index plus the margin on a loan do not add up to the initial interest rate. This is a higher priced mortgage loan and the rate is not discounted (the rate plus the margin is lower than the initial rate). Do I have a violaton? If not, is there a disclosure that should be given?

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[Anonymous]

I’m not sure there is enough info to answer this.
1. i.e. If it is a 5/1 arm are you already in the “1”? Is the rate going down?
2. Or, is this the original loan and you’re concerned about the stipulations of the way the note was approved by the lender?

I can’t think of any violations off the top of my head for HPML’s with a lower rate than what you had initially. HPML handles: verification of the ability to repay the debt, no prepayment penalties on the note or TIL and mandatory escrow for 1 yr if the loan is in fact a HPML.

Sorry if that still doesn’t make any sense.. I’m sure it wasn’t too helpful either.

[chichi63]

I’m sorry. This is the initial loan. As I’m reviewing the note, the initial index and margin do not equal the interest rate.

[Anonymous]

I’m assuming that if the index + the margin was used to calculate the APR, and that APR is shown on the TIL then you wouldn’t have a violation.

[jholzknecht]

The APR for a discounted ARM should the composite APR, which reflects the discounted rate until the first rate change date, then the fully indexed rate for the remaining term. The payment schedule should reflect multiple payment streams, which also reflect the discounted rate until the first rate change date, then the fully indexed rate for the remaining term.

[chichi63]

It’s not discounted. The initial rate is higher than the rate + margin.

[JGo9]

Assuming you have disclosed everything properly, then I don’t think you have a compliance issue.

You should look at it from the standpoint of UDAP and see if you have any concerns. UDAP is so open to interpretation, so I can’t give you definitive answer as it relates to UDAP, but since it kind of seems misleading, as most rate are either offered at a discount or at rate + margin, I could possibly see it leading there.

[chichi63]

The initial rate was directly off the bank’s rate sheet based on credit score. So it sounds like there shouldn’t be an issue.

[chichi63]

One more question:

Does the initial ARM disclosure have to be acknowledged by the consumer? That is, does it have to be signed?

[JGo9]

There is not a requirement that it be signed. That being said, getting it signed or some how documenting when and how it was delivered is a great idea and one I would highly encourage. That is just proof to auditors and examiners that you did indeed meet any kind of timing requirement.

That can be done through the customer signing, documentation by the loan officer, or if mailed a cover letter listing all of the documents that were mailed. This is not an all inclusive list but are some great ways to document.

[Author]

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