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Aug 27, 2009
Categories: Home-Secured Lending Consumer Lending

HOEPA - Section 226.35 - Higher-Priced Mortgage Loans; Early-Bird Pricing

Posted by Steve Van Beek

Section 226.35 creates a new category of mortage loans - "Higher-Priced Mortgage Loans" - which come with their own requirements and restrictions.  Keep in mind that although this category was created by the HOEPA amendments to Reg Z, it is distinct and separate from the traditional HOEPA loans (a.k.a. "Section 32 mortgages" or "high-rate/high-fee loans").

A mortgage loan is considered a "higher-priced mortgage loan" if the loan's APR exceeds the average prime offer rate for a comparable transaction:

  • By 1.5 or more precentage points for loans secured by a first lien on a dwelling, or 
  • By 3.5 or more precentage points for loans secured by a subordinate lien on a dwelling. 

The "average prime offer rate" will be determined by the Federal Reserve Board and posted at least weekly on the FFIEC website.  Because this rate will change on a weekly basis, credit unions will need to track their APR rates against this continuously moving "average prime offer rate" benchmark.

When do you measure the rate against the "average prime offer rate"?  The official staff commentary has the answer:

"3. Rate set. A transaction’s annual percentage rate is compared to the average prime offer rate as of the date the transaction’s interest rate is set (or ‘‘locked’’) before consummation. Sometimes a creditor sets the interest rate initially and then re-sets it at a different level before consummation. The creditor should use the last date the interest rate is set before consummation."  Comment 3 - Official Staff Commentary to 12 C.F.R. 226.35(a).

To see the latest "average prime offer rates" tables to gauge how your mortgage loan rates stack up, go to the FFIEC's rate spread calculator and review the tables for the maturity terms your credit union offers.  For this week, the average prime offer rate for a 30-year fixed mortgage was 5.18%.  Thus, if the new amendments were effective today, a first lien mortgage loan with a rate of 6.68% or higher would be a "higher-priced mortgage loan."

Remember, this benchmark will be a moving target that the credit union will need to monitor their loans against to ensure they are in compliance. 

Exceptions. Temporary or "bridge" loans with a term of twelve (12) months or less, reverse-mortgage loans, and HELOCs are not included in the definition of "higher-priced mortgage loans" regardless of their APR. 

Tomorrow we will cover the additional requirements and restrictions on "higher-priced mortgage loans" - including the escrow requirement for higher-priced mortgage loans secured by a first lien.

***

Two early-bird pricing offers expire tomorrow, Friday, August 28th.  The two offers are for NAFCU's Online Training Program and NAFCU's Regulatory Compliance Seminar.

Online Training.  By signing up for NAFCU's Online Training program by Friday, August 28th you will be able to lock-in the 30% introductory savings on the annual subscription price.  After Friday, the introductory pricing expires but you can still sign-up and receive access to the online training program for one-year from the date of subscription.  You can demo the online training program before purchasing and this powerpoint presentation Anthony created gives some additional information (including the pricing before and after Friday's early-bird deadline). 

Compliance Seminar.  The early-bird pricing for Compliance Seminar also ends Friday, August 28th.  Signing-up by August 28 allows you to save $200 off the full compliance program registration price.  The dates are October 19-22 in lovely Charleston, South Carolina.   

Special Offer for Blog Readers.  Given the short notice on the end of the early-bird pricing for Compliance Seminar - I've received the "go-ahead" to extend the early-bird for one week for blog readers.  Between August 31 and September 4, when you sign-up for Compliance Seminar - use promo code "THEBLOG" and receive the early-bird pricing through September 4.  Note: The promo code will not work prior to August 31 but the regular early-bird will still available through COB on Friday, August 28.  

Remember, anyone can sign-up and attend Compliance Seminar.  NAFCU members, non-members, and other credit union industry professionals are all welcome (and add significant value to the compliance discussions).

Compliance Hodgepodge at Seminar.  At Compliance Seminar, Anthony and I will have time set aside to discuss a number of important compliance issues that have not been given their own slot in the program.  In this fast-paced compliance environment, we decided to set aside these "Hodgepodge Sessions" on Wednesday and Thursday afternoons to discuss multiple issues.  

Here are the topics we plan to touch on: RESPA, S.A.F.E. Act, E-SIGN Act & E-statements, HVCC, Regulation D changes, Share Insurance, Fair Lending Exams, Regulation CC consolidation, Gift Cards, as well as Regulation Z issues (Private Student Lending Rules, HOEPA & MDIA Issues, and Proposed HELOC and Closed-End Amendments). 

We will also touch on these issues: Legislative Update, BSA Update, Corporate Stabilization Update, Pandemic Update, and a NCUA Guidance Update. 

If you have other ideas or topics you would like us to discuss, please leave a comment on the blog or shoot us an e-mail and we will do our best to incorporate them into the Hodgepodge Sessions.  

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