Exactly when do you calculate High-Cost and HPML tests? (hint: rate lock)
Sometimes we expect a loan in process to qualify as High-Cost, Higher- Priced, Mortgage Loan, or Higher-Priced Covered Transaction. But do we really know until the rate is locked?
Let's look at when the APOR/APR test is actually official. But first a look at the different rules where it is used.
Summary of Different Uses
There are a few different rules that depend on the difference between the Average Prime Offer Rate (APOR) and Annual Percentage Rate (APR). Here's a quick summary:
1)High-Cost Mortgage- 1026.32(a)
APR exceeds APOR by 6.5 points on the "date that the interest rate for the transaction is set"
2)Higher-Priced Mortgage Loan (HPML)- 1026.35(a)
APR exceeds APOR by 1.5 points or more "as of the date the transaction's interest rate is set."
3)Higher-Priced Covered Transaction (HPCT) (QM purposes)-1026.43
APR exceeds APOR by 1.5 points or more "as of the date the interest rate is set".
Note: These are just the very basic tests only. There are a number of exceptions and special provisions. There are different tests, for example, for small creditors, jumbo loans, and subordinate lien transactions.
APOR/APR Test Not Official Until Rate Lock
So back to the question of the day. "If we run the APR/APOR test on day one, does that determine whether this loan is High-Cost, HPML, or HPCT? Not exactly. The APR/APOR test is determined as of the day the interest rate is locked. So if the rate is floating to start, you might run these tests, but you'll need to run them again at rate lock.
Example:
Mortgage applicant comes in on July 1st and the interest rate is floating. The APOR is 3.45 and the APR is 5.00. This is likely an HPML or HPCT (although we're assuming no exception applies) because the APR exceeds the APOR by more than 1.5 points. But do we know for sure at this moment? No. If the borrower locks the rate 2 weeks later and the APR remains at 4.00, but the APOR has increased to 3.65, then we no longer have an HPML or HPCT.
In Other News:
Interested in real-life pros/cons of the different POS and LOS providers out there? SCA is hosting a free lunch in the second week of August for a small group of friends so that we can share as much tangible info as we can. No vendors. No salesmen. No gossip. If you're interested in attending - email me at BenGiumarra@scapartnering.com.
Hope mortgage volume is good at your company - note that applications increased 14.2 percent in the week ending July 1st over the previous week nationwide. (According to MBA) Does that mean things are continuing to heat up? With rates continuing to drop, everyone is bracing for a little boom.
Very interesting article on the complications with customizing luxury condos courtesy of the B&T (subscription required).
With so much of CRA and Fair Lending compliance driven off of statistics, it's important to have a good tool for managing this. At SCA, we work with a company called TruPoint Partners - we chose them because we found them to be best-in-class at generally great prices. Check out their website or order reports through us if you prefer.
Do you enjoy meetings at your institution? I get to participate in meetings at many different companies, seeing many different styles. At many places, meetings seem to be a negative part of the job - not something people look forward to. At others, meetings are energizing and meaningful.
Obviously, I don't have any secret answer here, but I did read something interesting in Patrick Lencioni's "Death by Meeting."
Paraphrasing pretty heftily, the book asks the question - Why are we happy to sit through a 2-hour meeting, but find a 1-hour meeting excruciating? How could you possibly prefer a movie over a meeting? A movie has no bearing or effect on your real life. You can't participate in a movie or interact with actors. You are forced to sit quietly through an entire movie that has no effect on your life without any ability to participate.
"If everything is important, then nothing is."
- Patrick Lencioni
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