How does everyone read the LLPA portion of the points and fees calculation? Are LLPAs only included when paid as points by the consumer? In other words, would a creditor be able to offset the LLPA by increasing the rate (premium price) and not have to include it in the points and fees?

Everything I read on it only mentions including it in the points and fees calculation if the LLPA is offset with points charged to the consumer and not rate adjustments.

As revised, § 1026.32(b)(1)(i)(D) provides that a bona fide third party charge not retained by the creditor, loan originator, or an affiliate of either the general is excluded from points and fees unless the charge is required to be included under § 1026.32(b)(1)(i)(C) (for mortgage insurance premiums), (iii) (for real estate related fees), or (iv) (for credit insurance premiums).

I am referring to the brief discussion on LLPAs mentioned in the preamble (pgs 75-80). It only makes referrences to points charged to offset LLPAs and no direct reference to increasing the rate to offset them. There is no other mention of LLPAs in the remaining text.

It does end by stating that bona fide discount points may be used to offset an increased rate to cover LLPAs and that this bona fide discount rate can be excepted under 1026.32(b)(1)(i)(E) or (F).

To me, this reads that you can increase the rate to offset LLPAs and there is no points and fees impact. If you charge points to offset then the points charged are added to the calculation. Does anyone else read it differently?

I concur - they went on to say:

The Board also noted that creditors may offset risks on their portfolio loans (or on loans sold into the secondary market) by charging a higher rate rather than additional points and fees; however, the Board recognized the limits of this approach to loan-level risk mitigation due to concerns such as exceeding high-cost mortgage rate thresholds.

Thanks

I agree as well - I am sure I am not the first and only but I have written FNMA suggesting they offer LLPA as a rate adjustment and not a price adjustment.

This would help simplify the risk of the 3% points and fees. For Prime loans, this method would most likely not result in a HPML if the creditor is not too greedy with their secondary market rates.

Just be aware, however, that compensating for the LLPA by increasing the rate, also impacts whether or not your loan is subject to HMPL or HOEPA (which could affect your QM status).