OCC ARM Regulation Compliance

A

The OCC ARM (Adjustable Rate Mortgage) regulation is a set of guidelines established by the Office of the Comptroller of the Currency (OCC) that governs the lending practices of banks that offer ARM loans. The regulation aims to ensure that banks make ARM loans that are safe and sound and that borrowers are provided with sufficient information about the loan's terms and risks.

Based on the given scenario, let's review each option and determine which one is not acceptable under the OCC ARM regulation:

A. The bank purchases loans from its state affiliate banks where the index on the loan is tied to First National's prime rate.

This practice is not explicitly prohibited under the OCC ARM regulation, but it may raise some concerns related to conflicts of interest. When a bank purchases ARM loans from its affiliate banks, it should ensure that the loans' terms and conditions are fair and reasonable, and that the loans are underwritten based on the bank's established underwriting standards. Additionally, the index used for the ARM loan should be based on a publicly available index, such as the national prime rate, to ensure that the loan's interest rate is not influenced by the bank's internal factors.

B. The bank makes loans to purchase single-family dwellings with interest rates that may be adjusted from time to time.

This practice is acceptable under the OCC ARM regulation, as long as the bank complies with all applicable laws and regulations and provides sufficient information to borrowers about the loan's terms and risks. The bank should also ensure that the loans are underwritten based on sound underwriting standards and that the interest rate adjustment terms are clearly disclosed to the borrowers.

C. The bank links the interest rate indices on its own ARM loans to the national prime rate as published in The Wall Street Journal.

This practice is acceptable under the OCC ARM regulation, as long as the national prime rate used is a publicly available index and the bank complies with all applicable laws and regulations. The bank should also ensure that it provides sufficient information to borrowers about the loan's terms and risks and that the loan is underwritten based on sound underwriting standards.

D. The bank requires its national bank affiliates to use the national prime rate as published in The Wall Street Journal as the index for any of the ARM loans it purchases.

This practice is not acceptable under the OCC ARM regulation because it places a restriction on the index that can be used for the ARM loans purchased by the bank. The bank should allow its affiliates to use any publicly available index for their ARM loans, provided that the index is based on an objective and verifiable source and the loan is underwritten based on sound underwriting standards.

In conclusion, the practice that is not acceptable under the OCC ARM regulation is option D, where the bank requires its national bank affiliates to use the national prime rate as published in The Wall Street Journal as the index for any of the ARM loans it purchases.