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Fed proposes ARM-related amendments
WASHINGTON (12/23/10)--The Federal Reserve (Fed) on Wednesday released an interim final rule that corrects requirements for interest-only loans to clarify that related disclosures should reflect the date of the interest rate change, rather than the date the first payment is due under the new rate. The interim final rule also clarifies the requirements for 5/1 adjustable rate mortgages (ARM). Specifically, it clarifies that for adjustable- or step-rate loans, the requirement to disclose the maximum interest rate and payment during the first five years must be based on the first five years after the first regular payment due date, rather than the first five years after consummation. For interest-only loans, the Fed’s new interim rule corrects requirements to clarify that related disclosures should reflect the date of the interest rate change, rather than the date the first payment under the new rate is due. It also revises the definition of “negative amortization loans” to clarify which transactions are covered by the special disclosure requirements for such loans, the Fed said. The interim rule also revises the definition of “negative amortization loans” to clarify which transactions are covered by the special disclosure requirements for such loans, the Fed said. The revised definition excludes loans that do not have a minimum required payment that results in negative amortization. The Fed release updates previous changes that the Fed made to Regulation Z in September of this year. Those changes required credit unions to disclose--in tabular format--the interest rate and corresponding monthly payment, including an estimated amount for escrow payments for taxes and property insurance and any mortgage insurance. Those changes also require special disclosures for adjustable-rate or step-rate mortgage loans, including the interest rate and payment at consummation, the maximum interest rate and payment at any time during the first five years after consummation, and the maximum interest rate and payment possible during the life of the loan. The interim final rule is effective on Jan. 30, 2011. However, the Fed added, compliance with its provisions is optional for transactions where an application for credit is received by the creditor before Oct. 1, 2011. The Credit Union National Association (CUNA) last month requested that the Fed withdraw an interim final rule that revises several Regulation Z mortgage loan disclosure requirements "as soon as possible" and "impose a general moratorium on the overall Regulation Z rulemaking process that is currently in progress." For the full Fed release, use the resource link.
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