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#1824936 - 06/19/13 09:52 AM HPMLs and Higher-Priced Covered Transactions
Bville Online
Platinum Poster

Registered: 05/08/01
Posts: 812
Loc: Out West
I need to make sure Im understanding the distinction between HPMLs (1026.35(a)) and Higher Priced Covered Transactions (1026.43(b)(4)).

A HPML must be secured by a principal dwelling and has 3 different rate spread thresholds:
1.5% - first lien non-jumbo
2.5% - first lien jumbo
3.5% - subordinate lien

A Higher Priced Covered Transaction may be secured by any dwelling principal / vacation home / second home and only has 2 rate spread thresholds:
1.5% - first lien loans
3.5% - subordinate lien loans

The distinction is important:
for knowing when escrows and appraisals are required for HPMLs
for knowing when there is a safe harbor vs. presumption of compliance for QMs
for underwriting non-QM balloons. (If it is a higher priced covered transaction or the term is less than 5 years, the balloon payment must be included in the monthly payment)

What am I missing and misunderstanding?

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Ability to Repay/Qualified Mortgage Rule Forum
#1861861 - 10/16/13 12:11 PM Re: HPMLs and Higher-Priced Covered Transactions [Re: Bville]
Iszy_theBug Online
100 Club

Registered: 11/28/06
Posts: 113
I believe I was first confused and was relating the "Higher Priced" Presumption of Compliance to apply only to HPML loans(Primary Residence).

Now it seems to me that it is its own creature and I have to apply the rate spread test to all Consumer RE transactions secured by any dwelling.

Everyone agree?

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#1862599 - 10/18/13 09:54 AM Re: HPMLs and Higher-Priced Covered Transactions [Re: Iszy_theBug]
HallieK Offline
Gold Star

Registered: 07/05/01
Posts: 289
Loc: Oklahoma
If I could pose a question: If we qualify to make loans under the (e) (5) Small Creditor Portfolio Loans, we have a 3.5% over APOR before a loan would be considered a High Priced Covered Transaction. My question is would it still be considered a HPML that we would be required to escrow for? (we are not rural or underserved)

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#1862684 - 10/18/13 11:49 AM Re: HPMLs and Higher-Priced Covered Transactions [Re: Bville]
raitchjay Online
Power Poster

Registered: 10/15/09
Posts: 4555
Loc: OK
You get the extra 2 points (from 1.5 for a first lien under the HPML rules in Sec. 35) to 3.5 under the small creditor QM rule......so if i'm understanding your question correctly, a loan that meets the "higher-priced" limits under the small creditor exception are naturally going to also be an HPML, so yes, if you have no escrow exemption, you'd need to escrow. To put it more succinctly: if a loan is "higher-priced" under the small creditor QM rules, it will be an HPML....conversely, an HPML under Sec. 35 may not be "higher priced" under the small creditor QM rules.
_________________________
"I have yet to see a piece of writing, political or non-political, that doesn't have a slant..."

E.B. White


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#1862692 - 10/18/13 11:56 AM Re: HPMLs and Higher-Priced Covered Transactions [Re: Bville]
John Burnett Offline
10K Club

Registered: 10/27/00
Posts: 30979
Loc: Cape Cod
Let's fine tune this a bit. If the Small Creditor Portfolio QM trips the APR trigger for an HPCT, it will also trip the APR trigger for an HPML, but only if it is secured by the consumer's principal dwelling. So SCPQMs that are secured by the consumer's non-principal dwelling (vacation home, for example) won't be HPMLs.
_________________________
John S Burnett
BankersOnline.com

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#1862696 - 10/18/13 11:59 AM Re: HPMLs and Higher-Priced Covered Transactions [Re: Bville]
raitchjay Online
Power Poster

Registered: 10/15/09
Posts: 4555
Loc: OK
Good point John...i wasn't considering n.o.o. dwellings in my post.
_________________________
"I have yet to see a piece of writing, political or non-political, that doesn't have a slant..."

E.B. White


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#1862722 - 10/18/13 12:26 PM Re: HPMLs and Higher-Priced Covered Transactions [Re: raitchjay]
HallieK Offline
Gold Star

Registered: 07/05/01
Posts: 289
Loc: Oklahoma
Thank you both so much for your help. It had just never hit me that using the higher spread would then trigger the HPML requirements. I guess I was using wishful thinking in that if it wasn't HPCT it wouldn't be a HPML. That's what I get for hopeing. Good point though about the principal dwelling. Have to remember the distinction.

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#1862906 - 10/18/13 03:23 PM Re: HPMLs and Higher-Priced Covered Transactions [Re: Bville]
Cornhusker Offline
Gold Star

Registered: 03/25/11
Posts: 341
Loc: SE, Nebraska
Bville - I think you got it.

HallieK, you asked, "My question is would it still be considered a HPML that we would be required to escrow for?"

To put it more succinctly, yes if it's primary dwelling secured.

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#1865354 - 10/28/13 08:52 AM Re: HPMLs and Higher-Priced Covered Transactions [Re: Bville]
giants06 Offline
Member

Registered: 03/04/10
Posts: 93
If a loan is a "HPML" loan but it does not exceed 3.5 to make it a "HPCT", and it's secured by the customer's primary dwelling; when underwriting the loan does the lender factor in the balloon payment in the DTI?

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#1867594 - 11/01/13 12:38 PM Re: HPMLs and Higher-Priced Covered Transactions [Re: John Burnett]
ccman Offline
Platinum Poster

Registered: 09/04/07
Posts: 511
Just a thought about training. These new rules seem very confusing to us, just how much more confusing are they going to be to the staff? Anyone with any suggestions on how to effectively train for these very complex new rules along with monitoring to avoid errors, violations, etc.

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#1867652 - 11/01/13 02:07 PM Re: HPMLs and Higher-Priced Covered Transactions [Re: giants06]
John Burnett Offline
10K Club

Registered: 10/27/00
Posts: 30979
Loc: Cape Cod
Originally Posted By: giants06
If a loan is a "HPML" loan but it does not exceed 3.5 to make it a "HPCT", and it's secured by the customer's primary dwelling; when underwriting the loan does the lender factor in the balloon payment in the DTI?


Since you ask about the 3.5% allowance for HPCT status, I have to assume you're asking about a subordinate lien loan or a QM under one of the small creditor QM rules.

If it's a balloon loan under .43(f), it would have to have a term of at least 5 years, a regular periodic payment based on an amortization period of no more than 30 years. You would be permitted to ignore the balloon payment when determining the applicant's ability to repay and when calculating the DTI.
_________________________
John S Burnett
BankersOnline.com

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#1869062 - 11/06/13 03:30 PM Re: HPMLs and Higher-Priced Covered Transactions [Re: Bville]
Kanbanker Offline
Junior Member

Registered: 08/29/12
Posts: 33
Loc: KS
I started a new thread before I recognized you are discussing my question here.

My take is that a loan is exempt from HPML rules if the loan meets the Small Creditor QM profile.

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