Is there a way to "undo" an HPML?

My bank's policy is to NOT make higher priced mortgage loans.
Recently, an HPML was inadvertently made by one of our employees. The division that mistakenly made the loan would like to take some form of "corrective" action that would "undo" the loan's HPML status.

They are suggesting either :

1) Refunding $XXX.XX, which would effectively lower the APR on the loan to a level that would be below the HPML threshold;

or

2) Refinancing the loan.

Would option 1 actually achieve their objective?

Is option 2 allowable, and if so, would it achieve their objective?

I am of the opinion that once an HPML, always an HPML. In other words, there really isn't any corrective action you can take to "de-classify" the loan as an HPML.

Is my assumption correct?

Also, because the loan application was received PRIOR to 4/1/10, it is our understanding that the new escrow rules for HPMLs would not apply to this loan at all during its term.

Correct?

As you assume, it's a done deal, but I'm not sure why a bank wouldn't want to make one, it's really not a big deal.

As far as escrow, you are correct, however I believe they use the term consummation, so it may be loans closed on or after, rather than applied for.

Even if you refinance, the original loan was booked as an HPML and will always remain so. I agree, it's not a big deal as long as you've done your due diligence on ability to repay, etc.

I agree. You can't take this away.

This happened at our bank too a couple of weeks ago. When I found it, I fully documented the file with the due diligence on repayment. We also are tracking it as an exception to policy since we too have a policy not to make HPMLs (can't service escrows once required in April).

I would also suggest re-looking at your procedures prior to closing and revamping to include a "check" for HPML status so it doesn't happen again. You don't want to have a policy of not making HPMLs only to have the examiners find a bunch of "accidental" ones during your exam.....they start to question your controls.

Dani York....EXACTLY our issue...we don't do escrow. In this situation we had controls in place requiring completion and secondary review of a HPML worksheet, and they were ignored by 3 different people reviewing the file before closing!

We are revisiting our procedures and seeing what we can do to ensure this doesn't happen again.

So here is my final question to the group....If, by chance, the bank inadvertently makes another HPML AFTER 3/31/10, how can we get out of the escrow requirement? Can we simply offer the customer a sweet deal to refinance the loan (e.g. with no fees and a better rate)???

I don't think so. You could refinance so the new loan is not an HPML and you would be able to service that loan without a violation, but that doesn't erase the fact that you made one in the first place and violated because you couldn't do the escrow account.

(BTW, the escrows are only required for 1st liens. So if it "accidentally" happens again on a junior lien, you would just need to document and move on. I wouldn't worry too much about those unless you have ALOT of exceptions to policy.)

We're still looking into how we'll handle escrows when the time comes.

We use the HPML feature in LaserPro to double-check whether or not the loan is an HPML.