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Our ARM loans do not have an introductory rate. Our initial rate is the index + the margin (no discount or premium rate) and after the fixed rate period of 5 years the rate can adjust annually. Prior to the update on Laser Pro our product on the LE & CD showed 0/1 Adjustable Rate. With this update it is now showing our adjustable rate product as 0/5 Adjustable Rate. The AIR table is still correct but we are questioning the Product. Is this the correct way to disclose the product? I’m thinking no.
The Release Notes show this example: The loan has an initial fixed rate of 5.000% and the fully-indexed rate is 5.000% but the initial rate applies for five years and then the rate adjusts every year based on the index plus a margin, then the loan would be disclosed as “0/5 Adjustable Rate,” because if no introductory period exists, then five years is the first rate adjustment period for the loan.
This is a new interpretation of how an ARM product should be disclosed that we haven’t heard. I believe the confusion is in the poorly worded commentary that uses the term introductory period and introductory rate interchangeably and these terms aren’t clearly defined.
We received feedback late last year from a CMG member that uses LaserPro. He said his product was the same as you described and it was being disclosed as 5/1 in LaserPro, his auditors argued it should be a 0/1. He went to LaserPro and D+H Senior Compliance Counsel provided him with a written response that it should be disclosed as a 5/1.
There seems to be definite confusion over this portion of the commentary and how ARM products should be disclosed. We have reached out to the CFPB for clarification and will update this post once we have more information.
Thank you Robin. We have internal auditors coming in May so I will get their opinion and update this post too.
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