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a. Adjustable Rate Mortgages (06/30/2023)
i. Definitions
The Change Date is the effective date of an adjustment to the interest rate, as shown in Paragraph 4(A) of the model Adjustable Rate Note form.
The Initial Index Figure is the most recent figure available before the Closing Date of the Mortgage.
The Current Index Figure is:
• the most recent index figure available 30 Days before the date of each interest rate adjustment, for Mortgages closed before January 10, 2015; and
• the most recent figure available 45 Days before the date of each interest rate adjustment, for Mortgages closed on or after January 10, 2015.
ii. Adjusting the Interest Rate on an ARM
To set the new interest rate on an ARM annually, the Mortgagee must review the mortgage documents containing interest rate provisions, and:
• determine the change between the Initial Index Figure and the Current Index Figure; or
• add a specified margin to the Current Index Figure.
Once the new adjusted interest rate is calculated, the Mortgagee must provide notice of the change to the Borrower.
(A) Interest Rate Transition from LIBOR Index to SOFR Index
For adjustable interest rate Mortgages indexed to the London Interbank Offered Rate (LIBOR), Mortgagees must transition the Mortgage from LIBOR to the applicable Refinitiv United States Dollar (USD) IBOR Consumer Cash Fallback (Refinitiv) Secretary-approved spread-adjusted Chicago Mercantile Exchange (CME) Term SOFR tenor replacement index as indicated in the table below to calculate the periodic adjustments to the mortgage interest rate:
Existing FHA-Insured LIBOR-indexed
Secretary-Approved Replacement
Index 1-, 3-, 5-, 7-, 10-Year Forward ARMs 12-Month CME Term SOFR (Refinitiv Instrument Code
Forward ARM
USDCFCFCTSA1Y=) The approved Refinitiv 12-month CME Term SOFR replacement index is found at: https://www.lseg.com/en/ftse-russell/benchmarks/usd-ibor-cash-fallbacks.
Note: When downloading historical SOFR rates from Refinitiv, Mortgagees must use the “All-In” CME Term SOFR Rate and select the “Feature” (No Floor).
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The Mortgagee must include a notification to the Borrower of the transition from the LIBOR index to the 12-Month CME Term SOFR replacement index in the ARM Adjustment Notice in accordance with the mortgage documents.
The Mortgagee must calculate the interest rate for each subsequent adjustment to the Mortgage using the 12-Month CME Term SOFR replacement index.
(B) Determining the Current Index Figure on an ARM
The table below describes the Current Index Figure to use based upon the day of the week on which the 30th Day falls.
When the 30th Day falls on a…
AND the 30th Day prior to a Change Date…
Then use the index figure issued on… Monday that is a business day
and the issue date of an H.15 release both occur on the same day (that is, they both occur on a Monday)
that Monday.
Monday that is a federal holiday
falls on a Monday that is a federal holiday
the prior week.
day of the week other than Monday
n/a the Monday of that week (or issued on Tuesday, if Monday is a federal holiday).
(C) Determining the Calculated Interest Rate on an ARM
The calculated interest rate is the current index plus the margin (the number of Basis Points (bps) identified as “margin” in Paragraph 4(C) of the model Adjustable Rate Note), rounded to the nearest 1/8th of one percentage point (0.125 percent).
(D) Determining the New Adjusted Interest Rate on an ARM
To determine the new adjusted interest rate, the Mortgagee must compare the calculated interest rate to the existing interest rate in effect for the preceding 12 months.
(1) Calculated Rate is Equal to Existing Rate
If the calculated interest rate is equal to the existing interest rate, then the new adjusted rate is the same as the existing interest rate.
(2) Calculated Rate is Less than Existing Rate
If the calculated interest rate is less than the existing interest rate, then the new adjusted rate is:
• the calculated interest rate for 1-, 3-, and 5-year ARMs if the calculated interest rate is less than one percentage point higher or lower than the existing interest rate; or
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3. Programs and Products - Adjustable Rate Mortgages (06/30/2023)
• the calculated interest rate for 5-, 7-, and 10-year ARMs if the calculated interest rate is less than two percentage points higher or lower than the existing interest rate.
(3) Calculated Rate is More than Existing Rate
If the calculated interest rate is more than the existing interest rate, then the new adjusted rate will be:
• limited to one percentage point higher or lower than the existing interest rate for 1-, 3-, and 5-year ARMs, if the new calculated interest rate is more than one percentage point (100 bps) higher or lower than the existing interest rate. (Note: index changes in excess of one percentage point may not be carried over for inclusion in an adjustment in a subsequent year); or
• the calculated interest rate for 5-, 7- and 10-year ARMs, if the calculated interest rate is more than two percentage points (200 bps) higher or lower than the existing interest rate. (Note: index changes in excess of two percentage points may not be carried over for inclusion in an adjustment in a subsequent year).
(E) Interest Rate Adjustments over the Term of the ARM
The Mortgagee must not adjust the interest rate over the entire term of the Mortgage resulting in a change in either direction of more than:
• five percentage points (500 bps) from the initial contract interest rate for 1-, 3-, and 5-year ARMs; or
• six percentage points (600 bps) for 5-, 7-, and 10-year ARMs.
(F) Effective Date of the ARM Interest Rate Adjustment
The adjusted interest rate is effective on the Change Date and remains in effect until the next Change Date.
During the term of the Mortgage, the Change Date must fall on the same date of each succeeding year.
iii. Computing the Monthly Installment Payment after an ARM Adjustment
The Mortgagee must determine a new monthly payment each time there is an interest rate adjustment. The Mortgagee must calculate the portion of the monthly payment attributable to P&I by:
• determining the amount necessary to fully amortize the unpaid principal balance for the remaining term of the Mortgage;
• crediting all eligible prepayments; and
• not debiting any delinquency.
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3. Programs and Products - Adjustable Rate Mortgages (06/30/2023)
To calculate the monthly installment, the Mortgagee must use the scheduled principal balance that would be due on the Change Date but reduced by the amount of any prepayments made to the principal.
All ARM adjustments affect interest rates only; negative amortization is not permitted.
iv. ARM Adjustment Notices
(A) Standard
At least annually and before any adjustment to a Borrower’s monthly payment may occur, the Mortgagee must provide written notification regarding the adjustment.
(1) Time Frame
(a) For Mortgages Closed before January 10, 2015
If the notice follows an adjustment in the monthly payment, the Mortgagee must provide the Borrower notice:
• at least 25 Days before any adjustment; or
• at least 30 Days before the adjustment if the mortgage agreement contains a provision stating that 30-Day requirement.
(b) For Mortgages Closed on or after January 10, 2015
The Mortgagee must provide notice in compliance with the time frames set out in TILA.
(2) Required ARM Notice Content
The content of the Adjustment Notice must advise the Borrower of:
• the new mortgage interest rate;
• the amount of the new monthly payment;
• the current index interest rate value; and
• how the payment adjustment was calculated.
(3) Sending the ARM Adjustment Notice
The Mortgagee must send the Adjustment Notice to the Borrower:
• by Certified Mail, return receipt requested; or
• by first-class mail to all property owners identified on its records.
(B) Required Documentation
The Mortgagee must retain the following in the Servicing File:
• evidence that timely notice was sent to the Borrower; and
• annual adjustment computations for the mortgage term.
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3. Programs and Products - Adjustable Rate Mortgages (06/30/2023)
(C) Failure to Provide the ARM Adjustment Notice
If the Mortgagee fails to provide notice to the Borrower for more than one year, then the Mortgagee must determine an adjusted interest rate for each omitted year, in order to determine the adjusted interest rates for subsequent years, and perform the following:
(1) Interest Rate Increase
If the Mortgagee’s calculations result in an increase of the interest rate, the Mortgagee has forfeited their right to collect the increased amount and the Borrowers are relieved from the obligation to pay the increased payment amount.
(2) Interest Rate Decrease
If the Mortgagee’s calculations result in a decrease of the interest rate, the Mortgagee must refund the excess, plus interest from the date of the excess payment to the date of repayment, at a rate equal to the sum of the margin and index in effect on the Change Date.
The Mortgagee must first apply any refund to any existing delinquency, and if excess funds remain, the Mortgagee must, at the Borrower’s request:
• provide the Borrower with a cash refund; or
• apply the remaining excess to the unpaid principal balance of the Mortgage.
(D) Errors in the ARM Adjustment Notice
HUD requires that errors be corrected if:
• the Mortgagee miscalculates the interest rate and/or the monthly payment; and
• the errors are reflected in the notice.
v. Commencement of Monthly Payment after ARM Adjustment
After the Mortgagee gives the Borrower proper notice of the adjustment, the Borrower begins paying the new monthly payment 30 Days after the Change Date.
vi. Assumptions of ARMs
In addition to sending the applicable Notice to Homeowner, Release of Personal Liability in Assumptions, the Mortgagee must attach a copy of the original ARM Disclosure Statement that established the index, margin, and the Change Date.
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