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Proposed rule aligns ARM, FHA interest rate adjustments
WASHINGTON (5/9/14)--The Housing and Urban Development Department has proposed two revisions to the Federal Housing Administration's (FHA) regulations governing its single-family adjustable-rate mortgage (ARM) program.
 
The revisions would align FHA interest rate adjustment and notification regulations with the requirements for notifying mortgagors of ARM adjustments, as required by the regulations implementing the Truth in Lending Act (TILA), as recently revised by the Consumer Financial Protection Bureau.
 
The first proposed amendment of this rule would require that an interest rate adjustment resulting in a corresponding change to the mortgagor's monthly payment for an ARM be based on the most recent index value available 45 days before the date of the rate adjustment, a change from current regulations that provide for a 30-day look-back period.
 
The date that the newly adjusted interest rate goes into effect is often referred to as the "interest change date." The number of days prior to the interest change date on which the index value is selected is called the "look-back period."
 
An overwhelming majority of ARMs originated in the conventional mortgage market currently have a 45-day look-back period and were required to comply with the 2013 TILA Servicing Rule notification requirements on Jan. 10, well before the effective date of this proposed rule. There should be little, if any, burden to apply the same 2013 TILA Servicing Rule requirements on FHA-insured ARMs. Therefore, the anticipated costs of this proposed rule are very minimal.
 
Additionally, since a majority of ARMs already have look-back periods of 45 days, the revised 45-day look-back period proposed by FHA is consistent with current industry norms.
 
The second proposed amendment would require that the mortgagee of an FHA-insured ARM comply with the disclosure and notification requirements of the 2013 TILA Servicing Rule, including at least a 60-day but no more than 120-day advance notice of an adjustment to a mortgagor's monthly payment.
 
FHA's current regulations provide for notification at least 25 days in advance of an adjustment to a mortgagor's monthly payment.
 
Since this proposed change also conforms to the 2013 TILA Servicing rule, HUD does not anticipate that the revised disclosure requirements will impose significant costs on FHA-approved mortgagees, since they were required to make these notification adjustments by Jan. 10.
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