Financial Update (First Quarter 2007)

Vol. 20, No. 1,
First Quarter 2007


Dennis Lockhart Named
Atlanta Fed President

Fed to Study Nation's
Payment Habits

Check 21 Continues
Brisk Growth

Atlanta Fed Joins
Poverty Research

Agencies Update Brochure on Nontraditional Mortgages

Guidelines on Commercial
Real Estate Loans Issued

Bernanke Focuses on
Fed's Supervisory Role

New Atlanta Fed
Directors Named

$1 Presidential Coin
Program Begins

Fed Turns Money
Over to Treasury


Did You Know?

Data Bank

Circular Letters


Subscribe Online


Fed Publishes Revised Handbook on Adjustable Rate Mortgages

ARM brochure To inform consumers about the potential pitfalls of adjustable-rate mortgages (ARMs), the Federal Reserve Board and the Office of Thrift Supervision have revised the Consumer Handbook on Adjustable-Rate Mortgages.

This revision is one of the most substantial since the booklet's first publication in 1987. It underscores banking regulators' concerns about the growing use of nontraditional mortgages such as interest-only and payment-option mortgages.

Booklet illustrates possible drawbacks of ARMs
In describing how adjustable-rate mortgages work, the booklet makes consumers aware of the situations that can arise from some of these mortgage products, such as sharply higher monthly payments when low introductory interest rates expire or, in the case of a payment-option mortgage, a gradually increasing principal balance.

Brochure off-site image

"If you are considering a discount ARM, be sure to compare future payments with those for a fully indexed ARM," the booklet notes. "If you buy a home or refinance using a deeply discounted initial rate, you run the risk of payment shock, negative amortization, or prepayment penalties or conversion fees."

The booklet shows how much (and how often) monthly payments could increase and how the loan balance could grow if borrowers make only the minimum monthly payments. The handbook also includes a mortgage shopping worksheet to help consumers compare various mortgage products and a glossary to help with terminology.

ARM applicants must receive a copy
Under the Truth in Lending Act, creditors must provide a copy of the booklet to every consumer who applies for an ARM. Up to 100 copies of the booklet are available free of charge from Publications, Mail Stop 127, Federal Reserve Board, 20th and C Streets, N.W., Washington, D.C. 20551.