The ARM Disclosures are provided pursuant to the provisions 12 CFR § 1026.19(b), which require certain disclosures and a booklet to be provided to consumers in connection with variable-rate transactions secured by the consumer’s principal dwelling with a term greater than one year. Our Disclosures largely follow the format and content of the Model H-4(C) Clauses set forth in 12 CFR Pt. 1026, App. H, with additional items of information as deemed appropriate.
One of the more interesting requirements of Section 1026.19(b) is in Subsection (b)(2)(viii), which allows the creditor to either provide:
1. A historical, illustrative example of a $10,000 loan showing how the payments and loan balance of such loan change when the interest rate change; or
2. A disclosure of the maximum interest rate and payment (at the initial interest rate) for a non-historic $10,000 loan, “in effect as of an identified month and year for the loan program disclosure assuming the maximum periodic increases in rates and payments under the program,” as well as the initial rate and payment for the loan. It must also include “a statement that the periodic payment may increase or decrease substantially depending on changes in the rate.” (Ibid. § 1026.19[b][viii][B])
The Official Staff Commentaries provide the following guidance in regards to the statement concerning the payment increases or decreases:
“The statement that the periodic payment may increase or decrease substantially may be satisfied by the disclosure in paragraph 19(b)(2)(vi) if it states for example, ‘your monthly payment can increase or decrease substantially based on annual changes in the interest rate.’” (12 CFR Pt. 1026, Supp. I, Paragraph 19[b][viii][B] – )
For our generic ARM Disclosures, we provide the second disclosure option. We do provide a statement in the first paragraph of the Disclosures which informs the borrower that their periodic payments may increase or decrease due to changes in the interest rate, but it does not use the language set forth in the Commentaries.
Pursuant to our policy of following suggested language from regulatory agencies and due to a suggestion of one of our clients, we will be including the suggested language from the Commentaries in our ARM Disclosures. The statement will appear as the last bulleted item in the section titled, “How Your Interest Rate and Payment Are Determined” (the part of the document which discloses the information required by Subsection [b][viii][B])
This change will take effect on August 31, 2013.
August 26, 2013