Are we too afraid of HPMLs?
We see a lot of lenders with policies prohibiting the origination of Higher-Priced Mortgage Loans. Lately, we've been asking: Why? HPMLs are not illegal ... is it that hard to meet the additional HPML requirements?
It hurts to turn away loans after the year we've had. It also hurts to lose the relationship with a good client because you don't offer enough flexibility in underwriting. But that's what's happening in some institutions because of the HPML requirements ... borrowers being denied (or hoops being jumped through to avoid HPML).
But what's so tough about the HPML rules? Here's some compliance straight talk on this issue.
1.Escrow Requirements
For HPMLs, escrow for taxes and insurance is mandatory. This has to be set up by consummation, so there's nothing you can do to "cure" an escrow violation after-the-fact.
But Note - The escrow requirement only applies to 1st lien loans ... so don't worry about this on any subordinate lien loans.
Exemptions: Escrow rule also does not apply to:
Initial construction loan
Bridge loans of 12 months or less
There are also some other less likely exemptions that apply, e.g., for reverse mortgages and for loans secured by shares in a cooperative.
2.Appraisal Requirements
The second thing required for HPMLs is that the lender needs to abide by an additional set of requirements related to appraisals. Here are some of the important ones:
Need an interior appraisal
Certified/licensed appraiser
Borrower gets a free copy of every appraisal
Sometimes, a second appraisal is required (when the seller owned the property for 180 days or less, depending on how much more the seller is selling it for). Where required - the second appraisal is free (for the borrower, that is).
New disclosure given within 3 business days of receiving application
Exemptions: The Appraisal requirements do not apply to:
1. Initial construction loan
2. Bridge loans of 12 months or less
3. Other small exceptions similar to those for the Escrow rule (e.g., for reverse mortgages)
4. Qualified Mortgages. This is a big exception. With a QM, you do not need to meet the appraisal requirements for HPMLs.
3.Miscellaneous State Requirement (bonus!)
If you're in Massachusetts, you'll also have to deal with some more requirements that are placed on HPMLs. There are (1) limitations on pre-payment penalties and (2) considering a borrower's ability to repay is mandatory. Again, these aren't so bad; as of 2014, Federal rules already require similar action on almost all closed-end mortgages, not just on higher-priced loans.
So- not to say this is super easy. But perhaps the HPML rules aren't so difficult so as to justify a flat-out policy prohibition?
*Extra Note: HPML vs. HPCT & the QM Issue
We have to recognize this related issue. Under the ATR/QM Rule, there is less protection from the QM Safe Harbor with so-called "higher-priced covered transactions." Confusingly, this "HPCT"uses almost exactly the same test as the HPML. This is a discussion for another day, but it is a separate reason to avoid "higher-priced" loans. The question is- is it enough? Special Note: "Small creditors" have more flexibility under the HPCT test ... so even though they originate an HPML, it may not be an HPCT (giving small creditors less reason to avoid HPMLs).
In other news:
Jamie Dimon's asking for over $1 billion from NY to build a new headquarters in Manhattan.
Look for a small glitch in your LOS that may be producing incorrect Homeownership Counseling disclosures ... we've had multiple clients bring this to our attention lately.
As predicted for over a year, we're expecting QRM to match QM ... thereby making QM all the more important, and also the CFPB (with power to define QM).
On to another topic, our new compliance consultant came in yesterday and announced, "I have some Good news! In preparation for the upcoming Thanksgiving holiday I went out and shot my first turkey! The bad news is that apparently the rest of the people in the frozen food section of Stop-n- Shop didn't appreciate it. I don't think I'll be allowed to shop there anymore." I hope he's going to work out ... too soon to say.
Do you care about your friend, a loved one? Do you appreciate a colleague? How do you show it? According to Gary Chapman, there are 5 ways humans express emotion towards each other: (1) gifts, (2) quality time, (3) acts of service, (4) words of affirmation, and (5) physical touch. For example, if you do a favor for a co-worker and she brings you in a small plant the next day (gifts) versus if she makes time to have lunch together (quality time). It's good to have an understanding of this ... if you speak a different "language" from a friend, you might not fully realize when they're trying to be nice to you (or when they're upset with you).
"So if you're walking down the street sometime, And spot some hollow ancient eyes,
Please don't just pass 'em by and stare,
As if you didn't care, say 'Hello in there, Hello'"
- John Prine
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**These are our opinions. We're not authorized, or willing, to express those of others.**