LIBOR CFPB FAQ ARMs 2 – When providing ARM loan program origination disclosures, how does a creditor disclose the historical example for indices, such as the SOFR- based indices, that do not yet have 15 years of values?

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Q:  When providing ARM loan program origination disclosures, how does a creditor disclose the historical example for indices, such as the SOFR-based indices, that do not yet have 15 years of values?
 
A:   For ARM loan program origination disclosures, Regulation Z, 12 CFR § 1026.19(b) requires, among other things, a loan program example disclosure illustrating the impacts of interest rate changes given the loan program terms. 12 CFR § 1026.19(b)(2)(viii).

The loan program example disclosure may be either (or both):
  • Historical Example: A historical example, based on a $10,000 loan amount, illustrating the interest rate impacts on the payments and loan balance for the most recent 15 years of index values for the consumer’s loan program terms (12 CFR § 1026.19(b)(2)(viii)(A));
    or
  • Initial and Maximum Example: The initial and maximum interest rates and payments based on a $10,000 loan amount and a statement that the payment may increase or decrease substantially depending on rate changes (12 CFR § 1026.19(b)(2)(viii)(B)).

If the creditor selects an index that has not been available for 15 years, such as one of the SOFR-based indices, and chooses to provide the historical example in the disclosure, the creditor need only provide index values that go back as far as values are available. Comment 19(b)(2)(viii)(A)-1. For example, index values for the “30-day Average SOFR Index,” published by the Federal Reserve Board of New York, are available beginning on May 2, 2018. Index values for May 2, 2018, through February 28, 2020, can be found on the Federal Reserve Board of New York’s website in this downloadable excel spreadsheet. Index values for March 2, 2020, to the present can be found here. Information about the index and using these values can be found here.
 
 
This Q&A was created based on information from the Consumer Financial Protection Bureau’s website (which may be updated from time to time) that provides Answers to Frequently Asked Questions on the Transition Away from LIBOR.  This information may be found here:  https://files.consumerfinance.gov/f/documents/cfpb_libor-transition_faqs.pdf
 

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