TILA – ARM Disclosures

Adjustable rate mortgages (ARMs) which are secured by the borrowers primary residence and have a term of greater than one year, face additional disclosure requirements under TILA. Although disclosing the following terms satisfies any disclosure requirements under TILA for any variable rate transaction, not every variable rate transaction requires the full set of ARM disclosures. Reg Z 226.18(f). The Required disclosures and the ARM Brochure must be provided to the borrower when an application form is furnished or before the payment of a non refundable fee, whichever is earlier. Reg z 226.19(b) Where the borrower receives the application by mail or a third party agent, the required information must be placed in the mail or delivered with three business days. Reg Z 226.19(b) n. 45 b.

Failure to properly and accurately disclose the following terms entitles the consumer not only to statutory and actual damages, but also to an extended right of recission.

The maximum interest rate that may be imposed during the term of the obligation must be disclosed to the borrower. Reg Z 226.30(a)

An ARM brochure, such as the Consumer Handbook on Adjustable Rate Mortgages must be provided to the consumer. Reg Z 226.19(b)(1)

Identification of the Index that will be used to calculate the interest rate and a brief description of the method used in calculating the interest rate are required. Reg Z 226.19(b)(2)(ii). A statement suggesting the consumer ask for the current margin and interest rate is also required. Reg Z 226.19(b)(2)(vi).

The frequency of the rate change and payment adjustments must also be disclosed. Reg Z 226.19(b)(2)(vi)

The consumer must be informed in writing of the consequences of negative amortization if the loan contains the potential for negative amortization. A creditor must disclose the rules regarding the exercise of this option, including the effects such as an increase in the interest rate or payment amount. Reg Z 226.19(b)(2)(vii).

If the loan has a conversion feature, the amount of fees which will be charged and how the fixed interest rate will be determined must be disclosed. Reg Z 226.19(b)(2)(vii).

Creditors must either disclose a historical loan example of charges from the index used or disclose the maximium interest rate and payment amount as based on a loan of $10,000.00. USC 1638, Reg Z 226.9(b)(2)(viii).

Disclosures regarding rate adjustments are required for all variable rate loans. Reg Z 226.19(b). These disclosures must include the adjusted payment amount, interest rate, index rate, and loan balance, and must be delivered in a timely manner. Reg Z 226.20(c)(1-4). Notice is required where interest rates adjust, and where payment will also adjust, the notice must be sent at least 25 and no more than 120 days prior to the due date of the adjusted payment. Reg Z 226.20(c)

Incorrect adjustment disclosures violate TILA requirements, giving rise to statutory and actual damages. USC 1640(a). As previously mentioned, there is a one year statute of limitation which runs from the date the faulty notice was sent. USC 1604(e).

ARMs face heightened disclosure requirement due to their complexity and due to the lending industry practice of “bait and switch” where borrowers are told their loan is “fixed rate”, negotiate based on that fact, and only after closing realize that they executed an ARM. Call Wilson Law Group today if you believe that you loan was fraudulently procured, or if it adjusted without notice to you from your creditor.

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