We are pleased to announce that the changes to our generic ARM Disclosures, as mentioned in the section named “Revised Notices on ARM Disclosures” in our article entitled “The January 2014 CFPB Regulations – Update” (available http://www.docutechcorp.com/the-january-2014-cfpb-regulations-update), have been completed.
As detailed in the aforementioned article, there will be two post-closing servicing notices which will be provided to borrowers, in connection with variable-rate loan transactions, within a certain amount of days before the first interest rate adjustments to their loans occur. A disclosure concerning these notices is required to be included in the Initial ARM Disclosures required under 12 CFR § 1026.19(b). The forthcoming revised Official Staff Commentaries provide the sample language for this disclosure as follows:
“You will be notified at least 210, but no more than 240, days before the first payment at the adjusted level is due after the initial interest rate adjustment of the loan. This notice will contain information about the adjustment, including the interest rate, payment amount, and loan balance.
You will be notified at least 60, but no more than 120, days before the first payment at the adjusted level is due after any interest rate adjustment resulting in a corresponding payment change. This notice will contain information about the adjustment, including the interest rate, payment amount, and loan balance.” (12 CFR Pt. 1026, Supp. I, Paragraph 19[b][xi])
The first paragraph of this disclosure refers to the notice required to be provided pursuant to 12 CFR § 1026.20(d) (hereafter referred to simply as the “Section 20[d] Notice”), while the second paragraph refers to the notice required by Ibid. § 1026.20(c) (hereafter referred to simply as the “Section 20[c] Notice”).
These disclosures will print on Cx13457 and 14089 as the last two bullet points in the section entitled “How Your Monthly Payment Can Change” (and will replace the current disclosure concerning post-closing servicing notices, which will become obsolete).
Twenty-five Days versus Sixty Days
While the text of the sample disclosure will be used verbatim in most instances, there are special circumstances under which the Section 20(c) Notice will need to be provided to a borrower at least 25 days before the first payment under the adjustment level is due, rather than 60 days. These circumstances are as follows:
1. When the loan allows for uniform interest rate adjustments which occur every 60 days or less;
2. When the calculation for the interest rate and payment is based on an index figure which is available on a date less than 45 days prior to the adjusted level date (i.e. the “look-back period” is less than 45 days). Please note this can only be applied to loans originated prior to January 10, 2015.
3. When the first adjustment to the interest rate occurs within 60 days of consummation and the new rate, as disclosed in the Section 20(d) Notice, is only an estimate.
When a loan is subject to these circumstances, then the second paragraph of the disclosure in the Initial ARM Disclosures will need to refer to 25 days, rather than 60 days. After a review of the ARM programs supported in ConformX, we have determined that the 25 days language would need to print for the following loans:
- FHA and VA ARM programs, until January 10, 2015. This is due to the fact that such loans have a look-back period of 30 days per FHA and VA requirements. The CFPB has stated that they have been working with FHA and VA to change their look-back periods to be 45 days or longer and they expect that such changes will be completed by 2015 (see 78 FR 10927 for details).
- ARM programs based on a 1 Month, 3 Month, or 6 Month ARM index, with change periods of or less than 60 days (i.e. loans with a one or two month ARM fixed period or one or two month periodic change).
Primary versus Secondary Residences; Loan Terms Less Than One Year
While Cx13457 and 14089 are provided both in connection with loans secured by a borrower’s primary residence (per 12 CFR § 1026.19[b]) and secondary residences (per Ibid. § 1026.18[f]), this new disclosure is only required for the former type of loans, for two reasons:
1. The requirement for this new disclosure is only limited to principal dwellings (see Ibid. § 1026.19[b][xi]). A similar type of disclosure is not required for secondary residences (see Ibid. § 1026.18[f] and 12 CFR Pt. 1026, Supp. I, Paragraph 18[f] – ).
2. The two new post-servicing notices are only required to be provided in connection with loans secured by the borrower’s principal dwelling (see Supra §§ 1026.20[c][i] & [d][i]).
However, lenders may provide these notices for loans secured by other types of property (see Ibid.) and it is routine to do so. To follow industry practice, we will be configuring the new post-closing servicing disclosures to print regardless of occupancy type.
In addition, the new post-closing servicing disclosures will print only in connection with loans with a term greater than one year, since the post-closing servicing notices are only required to be provided in connection with such loans.
If any clients only provide post-closing servicing notices for principal dwellings, or provide post-closing servicing notices in connection with variable rate loans with a term of one year or less, they are encouraged to contact us immediately to make arrangements to have the appropriate disclosures print.
While we do provide two generic Initial ARM Disclosures, some investors have their own specific Initial ARM Disclosures that they require to be provided in connection with loans which are sold to them and, as a result, many of our clients use these documents. We have been contacting these investors to see if they plan on changing these documents to include the new disclosure concerning post-servicing notices. Some have not yet done so, therefore we are asking for their permission to include it on our copy of their forms, to ensure that our clients are compliant with these new regulations. We will be updating investor versions of the ARM Disclosures as we receive feedback from them.
In the interim and due to the fast approaching implementation date of the new regulations, we will be providing an addendum to the Initial ARM Disclosure, entitled “Variable Rate/ARM Disclosure Addendum” (Cx18260), which will substantively replace the old post-closing service disclosure with the new ones (which will print under the same conditions as those in Cx13457 and 14089). This Addendum is designed to only print in packages that contain an ARM Disclosure which has not been updated to comply with the new requirements.
Test copies of updated Cx13457 and 14089, along with Cx18260 for loans with ARM Disclosures which have not been updated, may be printed from our Stage environment in ConformX right now. Clients will need to ensure that proper information is included in the fields for the document in order for the new text to print, particularly the Application Date.
The new disclosure text will print for loan applications taken on or after January 10, 2014, due to the effective date of the CFPB changes, and will be available to test in the ConformX Production environment January 4, 2014. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.
January 3, 2014
DR 142182 & 145987
These new servicing disclosures are effective January 10, 2014, for existing loans as well as new loans. From the related Small Entity Compliance Guide published by the CFPB on their website at http://www.consumerfinance.gov/f/201401_cfpb_small-entity-compliance-guide_tila-respa.pdf:
“ARM regulations § 1026.20(c) and (d) generally apply to ARMs originated both prior to and after the January 10, 2014, effective date.”
The restrictions previously in place to only trigger this new text for loan applications taken on or after January 10, 2014, have just been removed. The new text (or Cx18260, if applicable) will begin printing in ConformX Production today, January 10, 2014.
January 10, 2014