Consumer Handbook On Adjustable-Rate Mortgages (the CHARM Booklet) is an informational handbook published by the Federal Reserve Board that provides a loan applicant with key information on Adjustable Rate Mortgages (ARM’s) and is required, by Regulation Z, to be provided by the lender to the loan applicant at the time of application for certain mortgage loans. The main contents of the Booklet are:

1. What is an ARM
2. How ARM’s work: Description on initial rate and payments, adjustment period, index, margin, interest-rate caps, and payment caps.
3. Types of ARM’s: Description on Hybrid ARM’s, Interest Only ARM’s, and Payment-option ARM’s.
4. Consumer Cautions:Description on discounted interest rates, payment shock, negative amortization, prepayment penalties and conversion, and graduated payment or stepped rate loans.
5. Where to get information: Description on sources of information.
6. Glossary

Also Known As

• CHARM Booklet

Purpose

1. The primary purpose is to comply with legal requirements as laid down in §226.19 (b) (1) of the Regulation Z of the Federal Reserve Board. Regulation Z implements Truth in Lending Act (TILA). The Booklet is required by law (Regulation Z) to be provided to applicants applying for a consumer purpose loan secured by an owner occupied real estate.
2. The handbook provides the loan applicant pertinent information related to Adjustable Rate Mortgages.

Applicability
The CHARM Booklet needs to be provided for loan applications that meet all of the following elements:

1. Application is for an Adjustable Rate Mortgage.
2. Application is for a consumer purpose loan, i.e. loan extended primarily for a personal, family, or household purpose.
3. Application is for a Closed End loan. Therefore, it will not apply for HELOC’s.
4. Application is for a loan is secured by Owner Occupied home, which includes primary residence and second homes.
5. Application is for a loan having a loan term greater than one year.

Issued By
The CHARM Booklet is issued by the Federal Reserve Board. It is the obligation of the lender to provide the Booklet to the borrower as per the timing and delivery requirements in Regulation Z.

Timing for Delivery - 3 Business Day Rule
As per Regulation Z, the CHARM Booklet must be delivered or placed in the mail not later than three business days following receipt of a loan application. Business day means a day on which the lender’s offices are open to the public for carrying on substantially all of its business functions. Till the time the disclosures have been mailed, the lender cannot charge a non-refundable fee.

In case of online applications, the CHARM booklet may be provided to the loan applicant in electronic form on or with the application

Evidencing the Delivery of Booklet
An important question is how to evidence the delivery of the Booklet. There are various ways a lender can accomplish that:

1. Applicant’s Acknowledgement of Receipt: A certification/acknowledgement from the loan applicant that it has received the Booklet within three business days from receipt of loan application. This is generally combined with acknowledgement of all other initial disclosures, such as TIL, GFE, etc.
2. Checklist: A lender may prepare an internal checklist, for each file, where the loan processor or loan officer checks the list of documents sent at the time of application. This is a weaker form of evidence of delivery as compared to borrower’s acknowledgement.
3. Copy of Booklet in Loan File: Some lenders keep a copy of the Booklet, along with a date stamp, in the loan application as evidence of delivery of disclosure. This is not an ideal method.

Quality Control
Verification of delivery of the CHARM Booklet should be part of the checklist for Quality Control and for Internal Audit.

Ordering Copies
The Federal Reserve provide up to 100 copies free of cost. Additional copies are available at $0.25 per copy. To order write to Publications Fulfillment - Mail Stop N-127, Federal Reserve Board, Washington, DC 20551, or send a fax at 202-728-5886. The ordering instructions along with the order form can be found the Federal Reserve Bank’s How to Order Board Publications webpage.

External Links

1. Federal Reserve Board’s Dec 26, 2006 press release for issuance of revised CHARM Booklet.
2. On-line English version of CHARM Booklet at Federal Reserve Board’s website
3. Printable English version of CHARM Booklet at Federal Reserve Board’s website.
4. Spanish version of CHARM Booklet at Federal Reserve Board’s website.