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.