HOEPA: What should I use for a "treasury security with a comparable maturity"?

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Question:

My financial institution does not intend to offer loans that trigger HOEPA, but I still need procedures in place to make sure this doesn't occur. Is there a specified treasury index to be used? Most of our loans are 30year, and now the 30year treasury is discontinued. What should I use for a "treasury security with a comparable maturity"?

Answer:

There is a Reg. Z proposal out for comment at this time addressing this issue. Comments close Jan. 27, 2003. http://www.federalreserve.gov/boarddocs/press/bcreg/2002/20021126/attachment.pdf PDF file Page 6.

It says, "Loans with 30year maturities. Creditors relying on the H15 have requested guidance on which Treasury security is deemed to have a maturity comparable with 30year mortgage loans. The Department of the Treasury recently ceased auctioning 30 year securities; the H15 currently lists a longterm average of the yields for Treasury securities with terms to maturity of 25 years and over, and refers to Treasury’s formula for estimating a 30year yield."

Until that is formerly adopted, you may want to discuss this with your regulator. I have heard of some bankers who wanted to adopt this now and others who looked at http://www.federalreserve.gov/releases/h15/update/ and interpret "Treasury longterm average (25 years and above)" and its accompanying footnote 12 "Based on the unweighted average of the bid yields for all Treasury fixedcoupon securities with remaining terms to maturity of 25 years and over." to mean it should be used.

First published on BankersOnline.com 2/24/03