source:
  type: regulation
  id: hud-4000-1-programs-and-products-adjustable-rate-mortgages
  authority: HUD Handbook 4000.1 — Programs and Products - Adjustable Rate Mortgages (06/30/2023)
  description: "HUD Handbook 4000.1 section \"Programs and Products - Adjustable Rate Mortgages\". Gap-fill\
    \ (verbatim, title-diff). \n"
obligations:
- id: hud-4000-1-programs-and-products-adjustable-rate-mortgages-full
  canonical_id: hud-4000-1-programs-and-products-adjustable-rate-mortgages-full
  section: HUD Handbook 4000.1
  description: "Programs and Products - Adjustable Rate Mortgages: 3. Programs and Products \na. Adjustable\
    \ Rate Mortgages (06/30/2023) \nThe Change Date is the effective date of an adjustment to the interest\
    \ rate, as shown in \nParagraph 4(A) of the model Adjustable Rate Note form. \nThe Initial Index Figure\
    \ is the most recent figure available before the Closing Date …"
  type: do
  tags:
  - regulator-direct
  - section-complete
  - hud
  - 4000-1
  - curated
  primary_source:
    tier: 1
    authority: HUD Handbook 4000.1 — Programs and Products - Adjustable Rate Mortgages (06/30/2023)
    source_class: hud-handbook-4000-1
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-06-18T00:00:00+00:00'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: "3. Programs and Products \na. Adjustable Rate Mortgages (06/30/2023) \nThe Change\
      \ Date is the effective date of an adjustment to the interest rate, as shown in \nParagraph 4(A)\
      \ of the model Adjustable Rate Note form. \nThe Initial Index Figure is the most recent figure available\
      \ before the Closing Date of the \nThe Current Index Figure is: \n• the most recent index figure\
      \ available 30 Days before the date of each interest rate \nadjustment, for Mortgages closed before\
      \ January 10, 2015; and \n• the most recent figure available 45 Days before the date of each interest\
      \ rate \nadjustment, for Mortgages closed on or after January 10, 2015. \nii. Adjusting the Interest\
      \ Rate on an ARM \nTo set the new interest rate on an ARM annually, the Mortgagee must review the\
      \ \nmortgage documents containing interest rate provisions, and: \n• determine the change between\
      \ the Initial Index Figure and the Current Index \nFigure; or \n• add a specified margin to the\
      \ Current Index Figure. \nOnce the new adjusted interest rate is calculated, the Mortgagee must\
      \ provide notice of \nthe change to the Borrower. \n(A) Interest Rate Transition from LIBOR Index\
      \ to SOFR Index \nFor adjustable interest rate Mortgages indexed to the London Interbank Offered\
      \ Rate \n(LIBOR), Mortgagees must transition the Mortgage from LIBOR to the applicable \nRefinitiv\
      \ United States Dollar (USD) IBOR Consumer Cash Fallback (Refinitiv) \nSecretary-approved spread-adjusted\
      \ Chicago Mercantile Exchange (CME) Term \nSOFR tenor replacement index as indicated in the table\
      \ below to calculate the \nperiodic adjustments to the mortgage interest rate: \nExisting FHA-Insured\
      \ LIBOR-indexed \nForward ARM \nSecretary-Approved Replacement \n1-, 3-, 5-, 7-, 10-Year Forward\
      \ ARMs \n12-Month CME Term SOFR \n(Refinitiv Instrument Code \nUSDCFCFCTSA1Y=) \nThe approved Refinitiv\
      \ 12-month CME Term SOFR replacement index is found at: \nhttps://www.lseg.com/en/ftse-russell/benchmarks/usd-ibor-cash-fallbacks.\
      \ \n\n \nExisting FHA-Insured LIBOR-indexed \nForward ARM \nSecretary-Approved Replacement \nNote:\
      \ When downloading historical SOFR rates from Refinitiv, Mortgagees must use the \n“All-In” CME\
      \ Term SOFR Rate and select the “Feature” (No Floor). \nThe Mortgagee must include a notification\
      \ to the Borrower of the transition from the \nLIBOR index to the 12-Month CME Term SOFR replacement\
      \ index in the ARM \nAdjustment Notice in accordance with the mortgage documents. \nThe Mortgagee\
      \ must calculate the interest rate for each subsequent adjustment to the \nMortgage using the 12-Month\
      \ CME Term SOFR replacement index. \n(B) Determining the Current Index Figure on an ARM \nThe table\
      \ below describes the Current Index Figure to use based upon the day of the \nweek on which the\
      \ 30th Day falls. \nWhen the 30th Day \nfalls on a … \nAND the 30th Day prior to a \nChange Date…\
      \ \nThen use the index figure \nissued on… \nMonday that is a \nbusiness day \nand the issue date\
      \ of an H.15 \nrelease both occur on the same \nday (that is, they both occur on a \nMonday) \n\
      that Monday. \nMonday that is a \nfederal holiday \nfalls on a Monday that is a \nfederal holiday\
      \ \nthe prior week. \nday of the week other \nthan Monday \nn/a \nthe Monday of that week \n(or\
      \ issued on Tuesday, if \nMonday is a federal \nholiday). \n(C) Determining the Calculated Interest\
      \ Rate on an ARM \nThe calculated interest rate is the current index plus the margin (the number\
      \ of Basis \nPoints (bps) identified as “margin” in Paragraph 4(C) of the model Adjustable Rate\
      \ \nNote), rounded to the nearest 1/8th of one percentage point (0.125 percent). \n(D) Determining\
      \ the New Adjusted Interest Rate on an ARM \nTo determine the new adjusted interest rate, the Mortgagee\
      \ must compare the \ncalculated interest rate to the existing interest rate in effect for the preceding\
      \ 12 \n(1) Calculated Rate is Equal to Existing Rate \nIf the calculated interest rate is equal\
      \ to the existing interest rate, then the new \nadjusted rate is the same as the existing interest\
      \ rate. \n\n \n(2) Calculated Rate is Less than Existing Rate \nIf the calculated interest rate\
      \ is less than the existing interest rate, then the new \nadjusted rate is: \n• the calculated interest\
      \ rate for 1-, 3-, and 5-year ARMs if the calculated \ninterest rate is less than one percentage\
      \ point higher or lower than the \nexisting interest rate; or \n• the calculated interest rate for\
      \ 5-, 7-, and 10-year ARMs if the calculated \ninterest rate is less than two percentage points\
      \ higher or lower than the \nexisting interest rate. \n(3) Calculated Rate is More than Existing\
      \ Rate \nIf the calculated interest rate is more than the existing interest rate, then the new \n\
      adjusted rate will be: \n• limited to one percentage point higher or lower than the existing interest\
      \ \nrate for 1-, 3-, and 5-year ARMs, if the new calculated interest rate is more \nthan one percentage\
      \ point (100 bps) higher or lower than the existing \ninterest rate. (Note: index changes in excess\
      \ of one percentage point may \nnot be carried over for inclusion in an adjustment in a subsequent\
      \ year); or \n• the calculated interest rate for 5-, 7- and 10-year ARMs, if the calculated \ninterest\
      \ rate is more than two percentage points (200 bps) higher or lower \nthan the existing interest\
      \ rate. (Note: index changes in excess of two \npercentage points may not be carried over for inclusion\
      \ in an adjustment in \na subsequent year). \n(E) Interest Rate Adjustments over the Term of the\
      \ ARM \nThe Mortgagee must not adjust the interest rate over the entire term of the Mortgage \n\
      resulting in a change in either direction of more than: \n• five percentage points (500 bps) from\
      \ the initial contract interest rate for 1-, \n3-, and 5-year ARMs; or \n• six percentage points\
      \ (600 bps) for 5-, 7-, and 10-year ARMs. \n(F) Effective Date of the ARM Interest Rate Adjustment\
      \ \nThe adjusted interest rate is effective on the Change Date and remains in effect until \nthe\
      \ next Change Date. \nDuring the term of the Mortgage, the Change Date must fall on the same date\
      \ of each \nsucceeding year. \niii. Computing the Monthly Installment Payment after an ARM Adjustment\
      \ \nThe Mortgagee must determine a new monthly payment each time there is an interest rate \nadjustment.\
      \ The Mortgagee must calculate the portion of the monthly payment \nattributable to P&I by: \n\n\
      \ \n• determining the amount necessary to fully amortize the unpaid principal balance \nfor the\
      \ remaining term of the Mortgage; \n• crediting all eligible prepayments; and \n• not debiting any\
      \ delinquency. \nTo calculate the monthly installment, the Mortgagee must use the scheduled principal\
      \ \nbalance that would be due on the Change Date but reduced by the amount of any \nprepayments\
      \ made to the principal. \nAll ARM adjustments affect interest rates only; negative amortization\
      \ is not permitted. \niv. ARM Adjustment Notices \nAt least annually and before any adjustment to\
      \ a Borrower’s monthly payment may \noccur, the Mortgagee must provide written notification regarding\
      \ the adjustment. \n(1) Time Frame \n(a) For Mortgages Closed before January 10, 2015 \nIf the notice\
      \ follows an adjustment in the monthly payment, the Mortgagee \nmust provide the Borrower notice:\
      \ \n• at least 25 Days before any adjustment; or \n• at least 30 Days before the adjustment if the\
      \ mortgage agreement \ncontains a provision stating that 30-Day requirement. \n(b) For Mortgages\
      \ Closed on or after January 10, 2015 \nThe Mortgagee must provide notice in compliance with the\
      \ time frames set \nout in TILA. \n(2) Required ARM Notice Content \nThe content of the Adjustment\
      \ Notice must advise the Borrower of: \n• the new mortgage interest rate; \n• the amount of the\
      \ new monthly payment; \n• the current index interest rate value; and \n• how the payment adjustment\
      \ was calculated. \n(3) Sending the ARM Adjustment Notice \nThe Mortgagee must send the Adjustment\
      \ Notice to the Borrower: \n• by Certified Mail, return receipt requested; or \n• by first-class\
      \ mail to all property owners identified on its records. \n\n \nThe Mortgagee must retain the following\
      \ in the Servicing File: \n• evidence that timely notice was sent to the Borrower; and \n• annual\
      \ adjustment computations for the mortgage term. \n(C) Failure to Provide the ARM Adjustment Notice\
      \ \nIf the Mortgagee fails to provide notice to the Borrower for more than one year, then \nthe\
      \ Mortgagee must determine an adjusted interest rate for each omitted year, in order \nto determine\
      \ the adjusted interest rates for subsequent years, and perform the \n(1) Interest Rate Increase\
      \ \nIf the Mortgagee’s calculations result in an increase of the interest rate, the \nMortgagee\
      \ has forfeited their right to collect the increased amount and the \nBorrowers are relieved from\
      \ the obligation to pay the increased payment amount. \n(2) Interest Rate Decrease \nIf the Mortgagee’s\
      \ calculations result in a decrease of the interest rate, the \nMortgagee must refund the excess,\
      \ plus interest from the date of the excess \npayment to the date of repayment, at a rate equal\
      \ to the sum of the margin and \nindex in effect on the Change Date. \nThe Mortgagee must first\
      \ apply any refund to any existing delinquency, and if \nexcess funds remain, the Mortgagee must,\
      \ at the Borrower’s request: \n• provide the Borrower with a cash refund; or \n• apply the remaining\
      \ excess to the unpaid principal balance of the \n(D) Errors in the ARM Adjustment Notice \nHUD\
      \ requires that errors be corrected if: \n• the Mortgagee miscalculates the interest rate and/or\
      \ the monthly payment; and \n• the errors are reflected in the notice. \nv. Commencement of Monthly\
      \ Payment after ARM Adjustment \nAfter the Mortgagee gives the Borrower proper notice of the adjustment,\
      \ the Borrower \nbegins paying the new monthly payment 30 Days after the Change Date. \n\n \nvi.\
      \ Assumptions of ARMs \nIn addition to sending the applicable Notice to Homeowner, Release of Personal\
      \ Liability \nin Assumptions, the Mortgagee must attach a copy of the original ARM Disclosure \n\
      Statement that established the index, margin, and the Change Date."
    drafter_attestation: Verbatim section from snapshot 8c03836f77f317e1; boundary human-curated + substring-verified
      (2026-07-23).
  judgment: false
