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Loans with negative amortization appear to be fairly uncommon today. If you have a loan where negative amortization may occur, however, different disclosure requirements apply.
Negative-amortization loans must include the loan's initial interest rate, as well as:
The maximum interest rate that could apply when the customer must begin making fully amortizing payments;
Information about increases in the minimum required payments that could occur before the customer must begin making fully amortizing payments; and
The maximum interest rates that could apply when the payment increases occur.
Further, negative-amortization loans have a number of required disclosures about payments, such as the minimum required payment until and at the first and second rate increases (if any), the fully amortizing payment amount when it must first be made, and a statement about the impact of negative amortization.
In addition, negative-amortization loans also have a separate disclosure requirement that sets out the rate, payment and other information for two different options — making only the minimum payment, and making a full payment that doesn't result in negative amortization.
Balloons and refinancing
As with payment schedules, a balloon payment must be disclosed. But where the payment must be disclosed on the new form varies depending on whether the balloon payment occurs at the same time as another payment.
All loans subject to the rules also must include new language on the truth-in-lending disclosure that indicates there is no guarantee the consumer can refinance the loan.
The new rate and payment disclosure requirements are yet more mandates in a long line of revisions to how mortgage loans are disclosed. Brokers must keep up and prepare for even more adjustments and tweaks.
Amy Avitable is director of compliance services at Sheshunoff Consulting and Solutions.
She is an attorney and certified public accountant. As a nationally known compliance expert, she speaks frequently for state bankers and mortgage associations and the American Bankers Association. Avitable was formerly director of FIS Regulatory Advisory Services, where she served financial institutions, the Federal Deposit Insurance Corp., the Federal Reserve Board and the Office of the Comptroller of the Currency. Contact her: firstname.lastname@example.org.
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