Q: "What grade would you give the federal government in establishing disclosure rules for adjustable-rate mortgages (ARMs)?" A: "F" for "flunk," because the mandated disclosures exclude the essential information borrowers need to make decisions. Borrowers contemplating an ARM ought to know: 1) how long the quoted rate will last, 2) what might happen to the rate and payment when that initial rate period ends, and 3) what might happen to the rate and payment in subsequent adjustments after the first one. Most ARM borrowers know the answer to the first question, but many are at sea regarding the second and third questions. To answer them, they need to know: a) the rate index used by the ARM; b) the margin that is added to the index to determine the rate; c) the adjustment cap that may limit the first rate adjustment; d) the rate adjustment interval after the first adjustment; e) the adjustment cap on rate changes after the first change; and f) the maximum rate allowed by the ARM contract...
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