The Federal Reserve Board and the Office of Thrift Supervision today announced the availability of a revised Consumer Handbook on Adjustable Rate Mortgages (the CHARM booklet), which provides information to consumers about the features and risks of such loans. In recognition of the growing use of nontraditional mortgage products that allow borrowers to defer payment of principal and sometimes interest, the agencies have substantially revised the CHARM booklet to include discussions about “interest-only� and “payment option� mortgages. The revised booket in particular warns of the risks inherent in common industry practices, including teaser rates, payment adjustments, negative amortization and prepayment penalties. The revised booklet describes how these loans typically work, showing how much (and how often) monthly payments could increase, and how the loan balance could increase if minimum monthly payments are made. The booklet also includes a mortgage shopping worksheet to help consumers compare the features of different products, and a glossary to help them understand some of the terminology. Under the Truth in Lending Act, creditors must provide a copy of the CHARM booklet, or a suitable substitute, to consumers with every application for an adjustable rate mortgage loan. Goverment regulators are allowing creditors to continue to use existing stock of previous CHARM booklets until October 1, 2007, the date when they must use the revised CHARM booklet in order to comply with the TLA. Link: The revised CHARM booklet can be downloaded here (~4mb).

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