Step Rate Decrease
Non-ARM loans with more than one rate that increases over time are labeled as “Step Rate” in the “Product” description on the Loan Estimate (LE) and Closing Disclosure (CD) per 12 CFR § 1026.37 (a)(10)(i)(B):
“Step rate. If the interest rate will change after consummation, and the rates that will apply and the periods for which they will apply are known at consummation, the creditor shall disclose the loan product as a ‘Step Rate.'”
If the step rate was decreasing, the “Product” description was still being labeled as a “Fixed Rate”. The LE and CD in ConformX have been modified to use the label “Step Rate” when the loan is not an ARM and the interest rate will decrease.
For instance, “Step Rate” will now be used for construction to permanent loans where the permanent phase has a lower fixed interest rate than the construction phase fixed interest rate, as outlined in CFPB’s “Guide to the Loan Estimate and Closing Disclosure forms”, dated May 2018:
“When a single disclosure is used for both the construction and permanent phases and each phase has a different fixed rate, the creditor must disclose the Loan Product as “step rate.” This is because the interest rate will change after consummation, and the rates and the periods for which the rates will apply are known at consummation. (§ 1026.37(a)(10)(i)(B))”
Interest Only Life of Loan ARMs
The phrase “Includes only interest and no principal until _____” was not printing in the Loan Terms table of the LE/CD for loans with interest only payments for the entire term of the loan. The LE and CD have been modified to print this text in the “Monthly Principal & Interest” row when the “Can this amount increase after closing?” column is answered “Yes” for loans that are interest only until the balloon payment, per 12 CFR § 1026.37(b)(6)(iii):
“. . . If there is a period during which only interest is required to be paid, the disclosure required by this paragraph (b)(6)(iii) shall also state that fact and the due date of the last periodic payment of such period.”
The timing of the balloon payment completes the statement for these loans.
Balloon Payment ARMs
For non-construction ARM balloon loans, the amount printing in the “Balloon Payment” row of the Loan Terms table on the LE/CD was based on the fully indexed rate. The LE and CD have been modified to use the “max” amount from the “Principal & Interest” row of the “Final Payment” column of the Projected Payments table. This means the amount disclosed in the “Balloon Payment” row, “Can this amount increase after closing?” column of the Loan Terms table for these loans will now be “the maximum amount of the balloon payment” as required per 12 CFR § 1026.37(b)(7)(ii).
These document changes are currently on ConformX Stage servers for testing purposes and will be moved to ConformX Production servers on December 8, 2018. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.