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#2228623 - 01/09/20 02:48 PM APR Calculation
stach23 Offline
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I'm hoping to find information on the APR calculation. I've looked everywhere, tried all kinds of formulas, but can't seem to ever match the same numbers our software puts out. So maybe this is a long shot, but can somebody simply tell me how to accurately calculate an APR, and actually break down which fees are considered in the formula? We're small bank, without any fancy software except LaserPro when it comes to writing the loan, so we draw up our loan memos on Excel. However, by doing that, we can't tell if the loan is an HMPL or HOEPA until LaserPro shows the APR on the L/E or C/D. I want to be able to tell the customer right away if they'll need to have an escrow account, and not wait for the L/E to tell us. I have the loan memo able to calculate the payments, but I need it to calculate the APR. Is there anybody that can please help me do this? Thank you!

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#2228625 - 01/09/20 02:57 PM Re: APR Calculation stach23
RR Joker Offline
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Download the OCC software APRWIN maybe?
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#2228634 - 01/09/20 04:14 PM Re: APR Calculation stach23
DeeQ Offline
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Bob, I sent you a private message.
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#2228705 - 01/09/20 11:12 PM Re: APR Calculation stach23
Richard Insley Online
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Welcome to BOL, Bob!

DeeQ, we don't know what advice you provided, but here's the deal, Bob.

The APR calculation for all closed-end credit is governed by Appendix J of Regulation Z. All the math and methods are there. They are not simple.

Appendix J's rules are written into APRWIN, HOWEVER, before you can begin the APR calculations, you must know the dollar amount of the Amount Financed and the dates and dollar amounts of all advances and payments.

The Amount Financed is the principal amount of the loan minus all of the prepaid Finance Charges spelled out in section 1026.4 of Regulation Z. Most compliance officers have developed a grid of every loan fee that's ever used in their banks and make the PFC determination in advance.

The payment schedule for APR calculation purposes is not necessarily what you end up disclosing on LE or CD. It must always include the dollar amounts of all Finance Charges (not just interest) plus the repayment of each portion of the Amount Financed. In other words, you have to build the total set of numbers for the loan--duplicating all the calculations performed by LaserPro. ARM loans are particularly difficult, because you must project a payment schedule based on the special rules in Section 1026.17(c)(1), Interpretations 8 and 10. PMI and other non-interest FCs must be reflected in the payment schedule in the manner they will be imposed and consistent with other legal standards, such as the Homeowner's Protection Act.

As part of the payment schedule, Regulation Z imposes an unnatural scheme ("unit periods") for measuring elapsed time. Appendix J spells out this unique time measurement system, but it is not simple.

After you have build the same set of numbers that LaserPro will create, you enter those dates and dollars into APRWIN and get the APR. So, you see, the prohibitively difficult part of this is calculating the loan, not the APR.
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#2228728 - 01/10/20 03:23 PM Re: APR Calculation Richard Insley
stach23 Offline
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Thanks for everyone's help! The reason I asked this was to see if there was a way to calculate if a loan was an HPML or HOEPA before the Closing Disclosure was sent out. Surely there's a way to know, so finding out the APR is over the HOEPA guidelines at the last second doesn't cause any issues.

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#2228730 - 01/10/20 03:28 PM Re: APR Calculation stach23
rlcarey Online
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Most systems worth their weight in salt will tell you when you prepare the LE. There should be no surprises at closing unless there have been significant changes.
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#2228756 - 01/10/20 05:02 PM Re: APR Calculation rlcarey
stach23 Offline
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I don't want to wait for the L/E to be prepared, either. When a customer comes in, I want to tell them right then and there if they'll need to escrow. I don't want to have to say, "oh, I can tell you within 3 days." I use excel to calculate payments, so there has to be a way to calculate the APR knowing all the fees and variables. Then again, if there was a way, I would've probably found it by now. But I refuse to believe that these programs are using a formula that can't be built into excel that can yield the APR immediately.

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#2228760 - 01/10/20 05:10 PM Re: APR Calculation stach23
rlcarey Online
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I have never seen an Excel spread sheet that can handle the iterations required to determine an accurate APR and I have been at this for longer than Excel has been around.
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#2228763 - 01/10/20 05:38 PM Re: APR Calculation rlcarey
stach23 Offline
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If a software program can run an APR calculation, so can Excel. How was APR figured before the software? There HAS to be a manual way to do this. tired I mean, how did the software people tell the software to calculate it?

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#2228765 - 01/10/20 05:51 PM Re: APR Calculation stach23
rlcarey Online
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They did not do it in Excel.

Here is one previous discussion.

If you are not familiar with Richard Insley - he is "the" expert.

I still have one of his Sharp APR Examiner calculators that he built.

Previous Discussion
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#2228779 - 01/10/20 06:53 PM Re: APR Calculation stach23
Richard Insley Online
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Once again, this is not simple. To get the APR, you have to build all of the dates and dollars that make up the contract between the parties--i.e., a clone of your LaserPro system. Excel can handle the whole job, including the iterations--but you have to do it with "user defined functions" written in VBA. A working model will require A LOT of time and effort. You need to find a work-around.
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#2228782 - 01/10/20 07:01 PM Re: APR Calculation stach23
Richard Insley Online
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Originally Posted by Bob Stachowski
How was APR figured before the software?
Lenders used #2 pencils and table books that had been precalculated using mainframe early-to-mid-60s era computers. Those methods only supported the simplest of installment loans. Loans were vastly simpler then.
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#2228788 - 01/10/20 07:39 PM Re: APR Calculation stach23
Rocky P Online
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APR previously figured?

I remember in Compliance School in Norman, they printed out a 50 step BASIC program for a TI calculator for calculating a basic loan. At that time, it was Boston Computing, and Richard’s program for verification (and the reg Z tables). Loans and the regulation have gotten more complex.
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#2229024 - 01/14/20 08:03 PM Re: APR Calculation Richard Insley
runner Offline
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APR is crazy hard to build. It is a Present value calculation of the "Amount Financed". The APR is the % that is used to get you to the "Amount Financed". Once you have the APR, there are tools at FFIEC to determine HPML. A separate section 32 worksheet should be used for HOEPA/Sec 32 loans. You may already know this and asking about just APR. Make sure you have correctly calculated the "finance charges" and "Amount Financed".

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#2229026 - 01/14/20 08:28 PM Re: APR Calculation runner
Richard Insley Online
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Originally Posted by runner
APR is...a Present value calculation...Make sure you have correctly calculated the "finance charges"....
Correct. For this purpose, a correctly calculated FC is merely a byproduct of a correctly calculated payment schedule--the complete payment schedule, not just the disclosable summaries or abbreviated extracts. The APR is difficult, but the hardest part of this is creating all the dollars and dates that become the dataset for the PV calculations.
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