Fed Publishes Revised Handbook on Adjustable Rate Mortgages
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
"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