Please help me get this straight.

What are you comparing in this test? greater than or equal to 1.5% (1st lien QM) or 3.5% for subordinate lien -to what?

Are you comparing again to APOR?
Is the difference you use the straight interest rate rather than the QM test comparing to TLA?

Compare APR to APOR.

Got it! So, do I have this right - it looks like the same test as HPML (except the jumbo thing), so the purpose of this test is to see if you keep safe harbor. The purpose of HPML is additional compliance and disclosure requirements.

Is that right?

Pretty much.

There are a couple differences though.

HPCT coverage is checked on dwelling secured loans. HPML is checked for a consumers principal dwelling.

HPCT applies to open end transactions where HPMLs are only for closed.

And yes non-HPCT QMs receive a greater presumption of compliance.

The HPCT also applies to whether or not you include the balloon payment in a non-QM ATR loan.

Actually, section 1026.43, which defines covered transactions (including HPCTs) doesn't apply to open-end transactions. In 1026.43(a) it says that HELOCs covered by section 1026.40 are excluded. In the TILA ATR language, all open-end transactions are excluded. The Bureau has agreed, albeit unofficially so far, that the exclusion extends to all open-end credit transactions.

Can someone tell me if my analysis below is correct (we are a small creditor).

1. HPCT applies to all dwelling secured loans
2. HPML applies only to principal dwellings
3. HPCT and HPML only apply to closed-end loans.
4. Still use the APOR calculator for both tests.
5. HPML loans are those 1.5% over the APOR – still need to escrow on 1st liens
6. HPCT – because we are small creditor, will be considered a QM if we are not over 3.5% when compared to the APOR.
7. A loan can be an HPML loan, but not considered a HPCT

Thanks! I get it now!

Ok, we qualify for the Balloon Payment QM's, so if half of them are HPCT's (over 3.5% points), do we have to consider the balloon payment on the half that are HPCT regardless of doing over 5 year term?

Balloon QMs aren't my area of focus, but I do not think you have to consider the balloon payment in underwriting regardless of HPCT status. It is my understanding that HPCT status is a factor only for loans underwritten under General ATR.

That's what I thought too, but the book I have from PBS says otherwise. I will look into this further again. Thanks.

The key language you need is in 1026.43(f)(1)(iii):

(iii) The creditor considers at or before consummation the consumer's monthly debt-to-income ratio or residual income and verifies the debt obligations and income used to determine that ratio in accordance with paragraph (c)(7) of this section, except that the calculation of the payment on the covered transaction for purposes of determining the consumer's total monthly debt obligations in (c)(7)(i)(A) shall be determined in accordance with paragraph (f)(iv)(A) of this section, together with the consumer's monthly payments for all mortgage-related obligations and excluding the balloon payment;

(emphasis added)