Q: Which ARM servicing disclosures will the LIBOR transition affect?
A: Generally, none.
Regulation Z requires certain disclosures for ARMs generally after origination occurs. Most notably, mortgage servicing disclosures include, as applicable:
The Initial Interest Rate Adjustment Notice, which alerts the consumer to the initial reset of the ARM (i.e., the initial interest rate adjustment) and provides the consumer with information about the loan at the initial reset. The notice is provided months prior to the initial reset. 12 CFR § 1026.20(d).
The Subsequent Interest Rate Adjustment Notice, which alerts the consumer to subsequent interest rate adjustments that results in a payment change. The notice provides the consumer with information about the new interest rate and periodic
payment prior to each subsequent adjustment that results in a payment change. 12 CFR § 1026.20(c).
The Periodic Statement, which provides the consumer with mortgage loan account information, including alerting the consumer to upcoming interest rate changes and periodic payment changes, for each billing cycle. 12 CFR § 1026.41.
The LIBOR Transition Rule amended Appendix H-4(D)(2) and H-4(D)(4) of Regulation Z, which provides sample forms for the Initial and Subsequent Interest Rate Adjustment Notices. Reliance on the same forms allows creditors (and assignees or servicers) to be deemed in compliance with the notice content and format requirements. The updated sample forms, among other things, remove reference to LIBOR and include an example of a compliant reference to a SOFR-based index. See LIBOR Adjustable-Rate Mortgage FAQ 14 for more information about the sample forms.
Generally, the LIBOR transition will not change the timing or types of information required for the three mortgage servicing disclosures discussed above. However, Regulation Z places limitations on the content and format of these disclosures, which may be relevant if servicers are considering whether they can add information that is not required, including about the LIBOR transition.
For more information about how the LIBOR transition impacts the mortgage servicing disclosures and periodic statements, including the content and format limitations, see LIBOR Adjustable-Rate Mortgage FAQs 9, 10, 11, and 12 below. For more information on these mortgage servicing disclosures generally, see Section 5 and 6 of the Mortgage Servicing Small Entity Compliance Guide.