LIBOR CFPB FAQ ARMs 9 – Will the LIBOR transition trigger the ARM interest rate adjustment notices for existing loans?

Compliance > Regulation Z - TILA > LIBOR Transition
Q:  Will the LIBOR transition trigger the ARM interest rate adjustment notices for existing loans?
 
A:   Generally, no. The Initial Interest Rate Adjustment Notice is required to be provided months prior to the initial interest rate adjustment (except loans with terms of one year or less). 12 CFR § 1026.20(d). Subsequent Interest Rate Adjustment Notices are triggered only if the adjustment results in a payment change. 12 CFR § 1026.20(c).

Generally, the method for addressing the sunset of LIBOR is to change the index, and thus, the source from which the interest rate for the adjustment is derived. In most cases, this index change will not disrupt the contract’s schedule of interest rate adjustments. As a result, for most accounts, the ARM interest rate adjustment notices will continue on the same schedule established prior to the LIBOR transition.

But note, if the creditor changes the interest rate or the schedule for the interest rate adjustments at the same time it changes the index from LIBOR, the interest rate or schedule change may trigger the Initial or Subsequent Interest Rate Adjustment Notices. If it is the first interest rate change for the loan, in general, the Initial Interest Rate Adjustment Notice must be sent (at least 210 days, but no more than 240 days, before the first payment at the adjusted level is due). 12 CFR § 1026.20(d). If it is not the first interest rate change for the loan and the change of index results in a new payment amount, generally the Subsequent Interest Rate Adjustment Notice must be provided (at least 60 days, but no more than 120 days, before the first payment at the adjusted level is due). 12 CFR § 1026.20(c)(2).

For more information on the ARM interest rate adjustment notices, see Section 6 of the Mortgage Servicing Small Entity Compliance Guide.

 
 
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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