No public hearing was requested or held, but written comments responding to the notice were received. A taxpayer must start with one permitted variable rate as a base and, if desired, may subject the rate to additions, subtractions, multiplications, caps, and floors. The final section 1275 regulations define two types of variable rates. Objective rates, however, are not permitted. This would allow, for example, a rate equal to the total rate of return on a bond, or group of bonds.
Many objective rates reflect the returns on equities and commodities.
This means the qualified floating rate must be set at a current value. A qualified floating rate is not set at a current value if it is set more than 3 months before the start of the related accrual period on the underlying mortgage. The commentators suggest loan servicers may need more than 3 months to compute revised interest and payment amounts and to tell borrowers of those revised amounts. Thus, according to the commentators, the 3-month period should be extended. For regular interests having a passthrough rate to reflect this distinction, any underlying mortgage based on a qualified floating rate that is used to determine the passthrough rate must also reflect this distinction.