Adjusted Mortgage Regulation: Index for Interest Rate Calculation | CRCM Exam | ABA

Requirements for Loans Subject to OCC ARM Regulation and Regulation Z

Prev Question Next Question

Question

In Requirements section of Adjusted Mortgage Regulation (12 CFR 34), for loans subject to both the OCC ARM regulation and to Regulation Z, 12 CFR 226.19(b)

""that is, loans made to an individual, for personal purposes, secured by the borrower's principal dwelling, and having a term longer than one year"" the index to which the interest rate is tied must be:

Answers

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D.

D

In the Requirements section of the Adjusted Mortgage Regulation (12 CFR 34), for loans that are subject to both the OCC ARM regulation and Regulation Z, 12 CFR 226.19(b), the index to which the interest rate is tied must meet certain criteria. Specifically, this applies to loans made to an individual, for personal purposes, secured by the borrower's principal dwelling, and having a term longer than one year.

The question asks about the requirements for the index to which the interest rate is tied. The correct answer is D, which means that the index must be specified in the loan documents and readily available to and verifiable by the borrower.

In more detail, the index to which the interest rate is tied must be clearly identified in the loan documents. This means that the loan agreement or other loan-related documents must specifically state what index is being used to calculate the interest rate. This requirement ensures that the borrower knows what index is being used and can understand how the interest rate will be determined.

Additionally, the index must be readily available to and verifiable by the borrower. This means that the borrower must be able to access information about the index and verify the accuracy of the interest rate calculation. For example, the borrower should be able to access information about the index from a reliable source such as a financial news publication or the internet. Additionally, the borrower should be able to check that the interest rate calculation is correct based on the information provided about the index and the loan terms.

Option C, which refers to multiple values of a chosen measure or a moving average of the chosen measure calculated over a specified period, is not a requirement for the index to which the interest rate is tied under this regulation. Therefore, option C is not the correct answer.

In summary, the index to which the interest rate is tied for loans subject to both the OCC ARM regulation and to Regulation Z must be specified in loan documents and readily available to and verifiable by the borrower. This helps ensure that the borrower is fully informed about how the interest rate is determined and can verify the accuracy of the interest rate calculation.