Yes, there is a special higher-priced mortgage loan (HPML) threshold for “small creditors,” but only for purposes of the Qualified Mortgage (QM) rule.

For QM rule purposes, there is a special definition of “higher-priced,” which sets a threshold of 3.5% over the APOR for first-lien QM loans — provided that the QM lender qualifies as a “small creditor” and the QM loan is held in portfolio. (The special 3.5% HPML threshold also applies to loans qualifying as one of two types of balloon-payment QM loans.)

If a small creditor QM loan or one of the two covered types of balloon-payment QM loans falls under the 3.5% threshold, the loan will qualify for a “safe harbor” from the ability-to-repay requirements (rather than being subject to a “rebuttable presumption” that there is an ability to repay, which provides a lower level of protection for the lender).

Note, however, that these special provisions for QM loans do not apply to the general HPML provisions found elsewhere in Regulation Z, including the escrow requirement for HPMLs. For those purposes, the HPML threshold is 1.5% over the APOR — not 3.5% — for first lien loans secured by the consumer’s principal dwelling.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.43(b)(4) (“Higher-priced covered transaction means a covered transaction with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set . . . by 3.5 or more percentage points for a first-lien covered transaction that is a qualified mortgage under paragraph (e)(5), (e)(6), or (f) of this section . . . .”)

• Regulation Z, 12 CFR 1026.43(e)(5) (“Qualified mortgage defined—small creditor portfolio loans.”)

• Regulation Z, 12 CFR 1026.43(e)(6) (“Qualified mortgage defined—temporary balloon-payment qualified mortgage rules.”)

• Regulation Z, 12 CFR 1026.43(f) (“Balloon-payment qualified mortgages made by certain creditors.”)

• Regulation Z, 12 CFR 1026.43(e)(1) (“Safe harbor for loans that are not higher-priced covered transactions. A creditor or assignee of a qualified mortgage, as defined in paragraphs (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, that is not a higher-priced covered transaction, as defined in paragraph (b)(4) of this section, complies with the repayment ability requirements of paragraph (c) of this section.”)

• CFPB, Small Entity Compliance Guide, Ability-to-Repay and Qualified Mortgage Rule (March 2016), printed page 35 (“This special definition of higher-priced for Small Creditor and Balloon-Payment QMs only determines whether a loan has a safe harbor or rebuttable presumption of compliance with the ATR requirements. It does not affect whether a loan is a ‘higher-priced mortgage loan’ (HPML) under other Bureau rules and does not exempt a loan from other requirements for HPMLs.”)

• Regulation Z, 12 CFR 1026.35(a)(1) (“‘Higher-priced mortgage loan’ means a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set: (i) By 1.5 or more percentage points for loans secured by a first lien . . . .”)

• Regulation Z, 12 CFR 1026.43(g)(1) (“A covered transaction must not include a prepayment penalty unless: . . . (ii) The transaction: . . . (C) Is not a higher-priced mortgage loan, as defined in § 1026.35(a) [not as defined in § 1026.43(b)(4)].”)