DocMagic’s updated VA adjustable-rate mortgage (“ARM”) notes and riders with updated fallback language will be available on August 6, 2020.
In 2019, the Alternative Reference Rate Committee (“ARRC”) released recommended fallback language for closed-end, residential adjustable-rate mortgages (“ARMs”). Fannie Mae and Freddie Mac (the “GSEs”) have adopted the fallback language in uniform ARM notes and riders as a result of the discontinuance of the LIBOR Index.
DocMagic’s VA ARM notes and riders are generally modeled after GSE uniform instruments, but the new update will include only minor modifications to comport with VA regulatory requirements. Fallback language that references the selection of a “Replacement Index and Replacement Margin” will be excluded as it allows the Note Holder to select a replacement index other than those statutorily allowed.
Chapter 9a. of the VA Lender’s Handbook provides that the “Department of Veterans Affairs (VA) does not have a specific note or mortgage form that lenders must use for VA-guarantee loans.” However, the notes must be consistent with VA regulations. Under 38 U.S.C.A. §3707(b)(1), interest rate adjustment provisions of a VA guaranteed mortgage must “correspond to a specific national interest rate” that has been approved by the Secretary of the VA. Currently, only the one-year constant maturity Treasury Bill (CMT) index has been approved by VA (38 C.F.R § 36.4212(d)(1).
VA Circular 26-20-20 was published on June 1, 2020 with the purpose of reminding lenders that the Department of Veterans Affairs has established the CMT rate as the only approved index for ARM products.
If you have any questions, please contact DocMagic’s Compliance Department.
