Topic: Higher-Priced Mortgage Loans (HPMLs)
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We offer higher priced mortgage loans that are balloon loans with a 61-month fixed rate term and an amortization of up to 30 years. Which Federal Financial Institutions Examination Council (FFIEC) table should we use to determine average prime offer rates (Average Prime Offer Rates – Fixed or Average Prime Offer Rates – Adjustable)?
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You should use the FFIEC’s fixed-rate table for the loans you described. The balloon payment at the end of loan term does not change the fact that the loans have a fixed rather than adjustable interest rate. A fixed-rate mortgage is defined as a transaction secured by real property or a dwelling that is not…
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We qualify as a small creditor under the Qualified Mortgage (QM) rules, but we are not located in a “rural or underserved area.” We do make portfolio balloon loans that qualify for the small creditor balloon QM exemption, but that expires on April 1st of this year. After that date, can we continue to make balloon mortgages? Do you recommend not offering balloon loans and instead offering adjustable rate mortgages?
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We believe you may continue offering balloon loans that pass an ability-to-repay (ATR) analysis. However, your balloon loans will not qualify as QMs after April 1, 2016, unless you qualify for the “rural or underserved” exception to the QM requirements (which may be subject to change, as discussed below). As you suggested, an ARM loan…
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Is a temporary bridge loan with a term shorter than one year subject to the higher-priced and high-cost loan provisions? Are there any other issues with the interest rate or escrow requirements?
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A bridge loan is covered by the high-cost mortgage requirements, but not the higher-priced mortgage requirements, in Regulation Z. A bridge loan secured by the borrower’s principal dwelling may qualify as a “high-cost mortgage” if the interest rate exceeds 6% or 8% over the average prime offer rate, or if it has points and fees…
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Are there any limitations on late fees for higher-priced mortgage loans under federal or state law? If so, should our late fees be calculated as a percentage of the total payment or just the portion that is past-due?
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No, there are no limitations on late fees for “higher-priced mortgage loans,” which have interest rates exceeding 1.5%, 2.5% or 3.5% over the average prime offer rate (depending on the lien position and loan amount). Regulation Z imposes escrow, appraisal and other requirements on higher-priced mortgage loans, but it does not limit late charges for…
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Assuming that we meet the small creditor and the rural/underserved loan prerequisites, do we qualify for the exemption from the escrow account requirements for higher-priced mortgage loans? We stopped using escrow accounts for first-lien higher-priced mortgage loans after January 1, 2014, and we have not established escrows for any consumer after that date.
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Yes, you will qualify for the small creditor exemption from the higher-priced mortgage loan escrow requirements, provided that you (and your affiliates) do not maintain an escrow account for any extension of credit secured by real property or a dwelling for which a loan application is received on or after January 1, 2014. In addition:…
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In the CFPB’s upcoming ATR rules, does the threshold for a “higher-priced” balloon loan include a different threshold for jumbo loans?
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The CFPB’s ability-to-repay (ATR) rules include their own definition of a “higher-priced” loan. 12 CFR 1026.43(b)(4) (as of the June 12, 2013 amendment of the rule). The rule’s “higher-priced” definition does not include a separate interest rate threshold for jumbo loans, and instead sets the thresholds based on whether the loan is first-lien or subordinate-lien,…
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We are making an unsecured loan to purchase a primary residence. Would this be subject to RESPA, Regulation Z, or the HPML requirements?
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We believe that an unsecured loan would be exempt from the higher-priced loan requirements, the RESPA rules, and the HMDA requirements (which are contained in Section X of Fannie Mae’s Uniform Residential Loan Application form). All three regulations apply only to loans that are secured by certain types of properties, as explained below, and therefore…
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Under the Illinois Mortgage Escrow Account Act, we have to allow customers to terminate their escrow accounts once a loan is paid down to 65% of the original loan amount. Does this conflict with federal escrow requirements, and if so, which law applies?
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Based on our discussion of this issue with an attorney at the CFPB, to the extent that a federal requirement conflicts with the Illinois law, federal law preempts the state law. (Also, we are aware of at least one case holding that federal escrow regulations that conflict with Illinois law preempt the Illinois law’s requirements.…
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Do the HPML regulations apply to a loan secured by a modular home?
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The higher-priced mortgage loan (HPML) regulations apply to any consumer loan “secured by the consumer’s principal dwelling” (assuming that the loan otherwise meets the “higher-priced” definition). 12 CFR 1026.35(a)(1). The term “dwelling” is defined as a “residential structure that contains one to four units, whether or not that structure is attached to real property. The…