Split-Rate ARM Loans (effective June 30, 2005)
Effective June 30, 2005. Final treatment for Split-Rate ARM Loans effective with the 2Q05 capital classification.
In split-rate ARM loans, the principal portion of the payment is based on a fixed-rate amortization schedule while the interest portion is based on a floating rate index. These multifamily loans are available as fully amortizing product or with a balloon feature. The stress test model does not provide treatment for the split-rate ARM loans. Representation in the model as ARM product more closely matches contractual cash flows than modeling as a fixed rate product. Therefore, OFHEO directs that the split-rate loans be treated as ARMs when they are issued without a balloon payment feature or as Balloon ARMs when the loans contain a balloon payment feature.