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F ederal r es er v e Bank of D allas


C irc u la r No. 78-138
October 3, 1978

Computation of Annual Percentage Rates
For H U D /FH A Section 245 Graduated Payment Mortgages

T h e Board of Governors of the Federal Reserve System has published
for comment a proposed official staff interpretation approving the use of certain
tables and accompanying instructions prep a re d by the U. S. Department of Housing
and Urban Development. These tables a re intended for use in computing the annual
percentage rate on graduated payment mortgages under the H U D /F H A Section 245
Experimental Financing Program .
A copy of the proposed interpretation is p rin te d on the reverse of this
c ir c u la r . How ever, we have not attached copies of the tables themselves. These
tables may be found in the Feder al Register , Volume 43, No. 182— Tuesday,
September 19, 1978, pages 41995 through 42015. If you a re unable to locate a F e d ­
eral Register , copies of the tables are available through our Consumer A ffairs unit.
Comments on the proposed interpretation should be addressed to the
S e c re ta ry , Board of Governors of the Federal Reserve System, Washington, D. C.
20551. Comments must be received on or before October 19, 1978, and should in­
clude reference to FC-0154.
Any questions on the above interp retation may be directed to our Con­
sumer A ffairs unit at E x t. 6171.
S incerely yo u rs ,
Robert H. Boykin
First Vice President

Banks and others are encouraged to use the fo llow ing incoming WATS numbers in contacting this Bank:
1-800-492-4403 (intrastate) and 1-800-527-4970 (interstate). For calls placed locally, please use 651 plus
the extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (

E xtract From
Fed er al Register
VO L. 43, NO. 182
T u e s d a y , September 19, 1978
p. 41993
6210-01 ]
[1 2 CFR P o rt 2 2 6 ]

[Reg. Z; PC-01543
P r o p o s e d O fficia l S ta ff In te r p r e ta tio n

AGENCY: Board of Governors of th e
Federal Reserve System.
ACTION: Proposed official staff in ter­
SUMMARY: T h e Board is publishing
for com m ent a proposed official staff
in terpretation approving th e use of
certain tables and accompanying
instructions prepared by th e U.S. D e­
p a rtm en t of Housing and U rban D e­
velopm ent to be used to com pute th e
ann u al percentage rate on graduated
paym ent m ortgages under th e H U D /
FHA section 245 Experim ental Financ­
ing Program. T he proposed in terp reta­
tion is intended to assist in com puta­
tion of th e annual percentage ra te in
such mortgages.
DATE: Comments m ust be received on
or before October 19,1978.
ADDRESS: Comments including refer­
ence to FC-0154 to Secretary, Board of
Governors of th e Federal Reserve
System, W ashington, D.C. 20551.

G lenn E. Loney, Section Chief, Divi­
sion of Consumer Affairs, Board of
Governors of th e Federal Reserve
System, W ashington, D.C. 20551,
(1) In order to assist in th e com puta­
tion of annu al percentage rates in
graduated paym ent mortgages made
under th e HU D /FH A section 245 E x­
perim ental Financing Program , th e
Board sta ff proposes to approve use of
tables and accompanying instructions
prepared by th e Actuarial Division of
th e U.S. D epartm ent of Housing and
U rban Development.
T he Board staff has reviewed th e
tables and instructions prepared by
HUD and has determ ined th a t they
yield accurate annual percentage
rates. T he staff would appreciate any
comments th e public m ight have on
th is m atter, particularly regarding
w h ether th e instructions and tables,
which are attached to th e proposed of­
ficial sta ff interpretation, are clear,
understandable, and easy to use.
(2) To aid in th e consideration of
th is m atter, interested persons are in­
vited to subm it relevant data, com­
m ents or argum ents. All such m ateri­
als should be subm itted in writing to
Secretary, Board of Governors of th e
Federal Reserve System, W ashington,
D.C. 20551, and should be received n ot
la te r th a n O ctober 19, 1978. Such in­
form ation will be made available for
inspection and copying upon request,
except as provided in § 261.6(a) of th e
Board’s Rules Regarding Availability
of Inform ation (12 CFR 261.6(a)).
(3) P u rsu an t to th e a u th o rity grant­
ed in 15 U.S.C. 1640(f), th e Board staff
proposes to issue th e following official
staff interpretation:
M r. C hester C. F o ster,

Acting Director, Actuarial Division, De­
partment of Housing and Urban Devel­
opment, , Washington, D.C.
D ea r M r . F o s t e r : This letter is in re­
sponse to our recent correspondence and
conversations concerning proper computa­
tion of the annual percentage rate for grad­
uated payment mortgages made under the
Department of Housing and Urban Develop­
m ent’s FHA Section 245 Experimental Fi­
nancing Program. You'have requested th at
the Board staff review and verify th at the
attached tables, when used in accordance
with the attached instructions, yield an ac­
curate annual percentage rate for purposes
of Regulation Z.
The staff has reviewed the attached mate­
rials and concludes that, subject to the limi­
tations set forth below, use of the tables in
accordance with the Instructions which ac­
company them results in an accurate annual
percentage rate.
It should be noted th a t this approach may
be used only when the first payment period,
i.e.. the period from the date on which the
finance charge begins to accrue to the date
of the first payment, falls within the ranges

describe in the minor Irregularities provi­
sions of Regulation Z, $ 226.5(d) and Inter­
pretation § 226.503. This means th a t the
first payment must be due not more than 62
days after consummation of the loan in
order for use of the tables to yield an accu­
rate annual percentage rate. Use of this
method also presumes th a t the monthly
payments have been properly calculated
using HUD Handbood 4240.2, dated October
27, 1976. Finally, we note th a t these tables
and instructions cannot be used for gradu­
ated payment plans involving private mort­
gage insurance premiums, unless such insur­
ance premiums are computed in the same
manner as the FHA mortgage insurance
premiums involved in the Section 245 Grad­
uated Payment Mortgage program.
This is an official staff Interpretation of
Regulation Z. issued in accordance with
§ 226.1(d)(2) of the regulation, and it is
strictly limited to the situation discussed
N a t h a n i e l E. B u t l e r ,
Associate Director.

Board of Governors of th e Federal
Reserve System, Septem ber 5, 1978.
G r i f f i t h L. G arw o o d ,

Deputy Secretary
of the Board.