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#1588897 - 08/08/11 03:50 PM Rate Spread Calculation Challenged
In Need of Help 101 Offline
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Joined: Jan 2006
Posts: 574
Recently we had a Fair Lending Review performed from an outside source. This is the second year we have contracted with them. This morning I received their preliminary report and they are saying I did not report the correct rate spread for four separate loans last year on the LAR.

Is this the correct info you put in on the FFIEC Rate Spread Calculator?

Lock-in Date: We use the date on the approval doc (not the application)
APR: We use the final APR
Fixed Term: We use the term of the loan (not the amortization period)
Lien Status: As shown in approval doc or title work

When this information is entered into the software we use the rate spread the calculator prints whether NA or the actual spread.

Is this correct?

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#1588963 - 08/08/11 04:51 PM Re: Rate Spread Calculation Challenged In Need of Help 101
Dan Persfull Offline
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Lock in date - the date the rate is set for the final time - if that's the approval date then that's the date you use.

APR - the APR disclosed at consummation.

Fixed Term - correct if fixed rate. If an ARM then you put number of years to first rate change, i.e. 5/1 ARM you enter 5 regardless if a 20 year loan.

Lien Status - self explanatory

LAR- enter the rate spread or NA whichever is applicable.
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#1589176 - 08/08/11 08:01 PM Re: Rate Spread Calculation Challenged Dan Persfull
complylady Offline
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It sounds like you are inputing the correct information, as expanded upon by Dan. Just because they are an outside source does not mean they are correct. Ask them to show you what they are basing their findings on, if you agree then ok - but if you still do not see where you are incorrect and they insist - ask your regulator. The auditors should be willing to support their findings and clear up any misunderstanding. You both may agree on the correct procedures - there just may be something unusual about these applications.

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#1615244 - 10/13/11 03:28 PM Re: Rate Spread Calculation Challenged complylady
Quatro Offline
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SC
For the Loan Term, would it make any difference if the loan was c/p, and there was a 1-year interest only period?
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#1615316 - 10/13/11 04:20 PM Re: Rate Spread Calculation Challenged Quatro
Adam Witmer Offline
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By c/p, do you mean commercial purpose?

From GETTING IT RIGHT: "If the loan is not subject ot Regulations Z, or is a home improvement loan that is not dwelling-secured, or is a loan that you purchased, enter NA."
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#1615335 - 10/13/11 04:32 PM Re: Rate Spread Calculation Challenged Adam Witmer
Brent B Offline
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Champaign, IL
Or does c/p mean construction/perm?

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#1615354 - 10/13/11 04:46 PM Re: Rate Spread Calculation Challenged Brent B
Quatro Offline
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Sorry, that was my fault. c/p meant construction/perm.
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#1615452 - 10/13/11 06:01 PM Re: Rate Spread Calculation Challenged Quatro
Adam Witmer Offline
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I don't know of any guidance that would treat a const/perm loan any differently.
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#1615468 - 10/13/11 06:13 PM Re: Rate Spread Calculation Challenged Quatro
Dan Persfull Offline
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Originally Posted By: Quatro
For the Loan Term, would it make any difference if the loan was c/p, and there was a 1-year interest only period?


I have to assume the loan is a one time close and has a 1 year interest only term and then a 29 year P&I repayment term after that. In that case the loan's term is 30 years.
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#1617943 - 10/20/11 12:51 PM Re: Rate Spread Calculation Challenged Dan Persfull
ynot Offline
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Joined: Sep 2011
Posts: 81
Florida
Still confused about what date to use for Interest rate and APR to calculate the APOR

Similar situation: At early disclosure the APOR was NA then at closing the APOR changed and was over the tolerance.

We don't lock in interest rates, we rarely change interest rates from early disclosure.
Last edited by ynot; 10/20/11 02:48 PM.
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#1618019 - 10/20/11 02:34 PM Re: Rate Spread Calculation Challenged ynot
fslic banker Offline
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I have the same question as ynot. Suppose we rate lock on 9/15/11 and loan closes on 10/5/11. For HMDA reporting purposes do we report rate spread on day we sent rate lock letter (9/15) or do we utilize FFIEC Rate Spread calculator on day prior to loan closing and report rate spread calculated on 10/4/11?

Second question - on consumer loans where we do not rate lock and where we utilize interest rate in effect on date of application as the interest rate on Note. Do we report rate spread on HPML calculation on date of application or should we calculate again on day before closing, or day of closing, and report that rate spread on our LAR?

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#1618063 - 10/20/11 03:05 PM Re: Rate Spread Calculation Challenged ynot
ynot Offline
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Posts: 81
Florida
Maybe this will clarify my earlier question.

To calculate the rate spread is it correct to use the following:

Lock in date = Early TIL date(we rarely change interest rate from early disclosure)

APR = APR at Final TIL

thanks for your help!

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#1618500 - 10/21/11 12:59 PM Re: Rate Spread Calculation Challenged ynot
ynot Offline
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Florida
Bump

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#1618561 - 10/21/11 02:39 PM Re: Rate Spread Calculation Challenged ynot
Adam Witmer Offline
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FB and ynot, you bring up a question that many bankers struggle with. The problem is the guidance isn't really designed for banks that don't have "defined" rate locks (unlike secondary market loans which have "defined" rate locks). HMDA guidance states that you are to use the date the rate was last locked. Because of this rule, I have seen bankers use different interpretations when they don't have a "defined" rate lock; application date, RESPA date, underwriting date, date of any changes, and closing date. Other bankers have their loan officer complete a "rate lock date" form and use the date provided by the loan officer.

In my opinion, you will have to look at your operations to determine what date is the most reasonable. I feel that in many institutions, the best date to use is the date the loan is approved as you can argue that this is the technical date the rate is locked by the Bank; the rate wasn't really locked until the loan was approved and the rate didn't change after the approval. However, if your institution does not change rates for any loans from the rate given at the time of application (meaning if they are approved, they get the rate at application), you would have a good argument for using the application date.

Bottom line, you need to look at the process at your institution and determine what date is most appropriate. Then, be consistent across the board. You may also want to run this by your primary regulator and see if they have any input.
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All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#1618569 - 10/21/11 02:49 PM Re: Rate Spread Calculation Challenged ynot
Adam Witmer Offline
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Originally Posted By: ynot
Still confused about what date to use for Interest rate and APR to calculate the APOR


You should use the APR on the final TIL to calcualte the rate spread. The earlies are just an estimate and the TIL contains the actual rate.
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Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.
www.compliancecohort.com

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#1618630 - 10/21/11 03:50 PM Re: Rate Spread Calculation Challenged Adam Witmer
ynot Offline
Member
Joined: Sep 2011
Posts: 81
Florida
Thank you AJ Compliance.

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#1620732 - 10/27/11 01:26 PM Re: Rate Spread Calculation Challenged ynot
WCB_Banker Offline
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Posts: 14
Ohio
I have a similar issue. We do not lock rates. We give the customer the rate at application. So we have been using the application date as the lock-in date. But there is a disagreement about whether to use the APR from the preliminary or final TIL? Some think that because we are using the application date as the lock-in date we need to use the APR from the preliminary TIL. I think we should use the APR from the Final TIL, since it is the true APR of the loan, regardless of what lock-in date we use. Please advise.

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#1620758 - 10/27/11 01:58 PM Re: Rate Spread Calculation Challenged WCB_Banker
Dan Persfull Offline
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Bloomington, IN
The regulation directly addresses this. From 203.4.

(12)(i) For originated loans subject to Regulation Z, 12 CFR part 226, the difference between the loan's annual percentage rate (APR) and the average prime offer rate for a comparable transaction as of the date the interest rate is set, if that difference is equal to or greater than 1.5 percentage points for loans secured by a first lien on a dwelling, or equal to or greater than 3.5 percentage points for loans secured by a subordinate lien on a dwelling.

The loan has not yet been made when the ETIL is issued therefore you have to use the APR disclosed when the loan is consummated. That APR is the loan's annual percentage rate.
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