| Transaction Coverage | A Consumer-credit (Open or Closed-end), secured by consumer’s PRINCIPAL Dwelling, which is triggered by EITHER the APR or Points/Fees (see below). | A Consumer-credit (Closed-end) secured by the consumer’s PRINCIPAL Dwelling with an APR that exceeds the APR trigger (see below). |
| APR Test | A transaction is a high-cost mortgage if its APR exceeds the Average Prime Offer Rate (APOR) for a comparable transaction (as of the date the interest rate for the transaction was set) by more than:
– 6.5 percentage points for first-lien transactions
– 8.5 percentage points for first-lien transactions which are less than $50,000 and secured by personal property (e.g., RV’s, houseboats, Manufactured homes titled as personal property)
– 8.5 percentage point for junior-lien transactions. | The transaction’s final APR exceeds the APOR as of the date the interest rate is set for a transaction of a comparable loan term by more than:
– 1.5% or more for loans secured by a first lien with a principal obligation at consummation that does not exceed Freddie Mac’s loan limit as of the rate set date.
– 2.5% or more percentage for loans secured by a first lien with a principal obligation at consummation that exceeds the limit in effect as of the date the transaction’s interest rate is set for the maximum principal obligation eligible for purchase be Freddie Mac (Jumbo loan); or
– 3.5% or more percentage points for loans secured by a subordinate lien. |
| Points & Fees Test | A transaction is a high-cost mortgage if its points and fees exceed the following thresholds:
– 5.0 percent of the total loan amount for a loan amount greater than or equal to $26,092*
– 8.0 percent of the total loan amount or $1,305* (whichever is less) for a loan amount less than $26,092* | Not applicable (No point or fee triggers) |
| Prepayment Penalty trigger | Closed-End – if charged to consumer for prepaying all the principal in 36 months or sooner after origination.
Open-End – if charged to consumer for terminating plan prior to 36 months or sooner after origination. | N/A – no Prepayment Trigger |
| Transactions that are Exempt | – Reverse mortgage
– Construction loan (finance initial construction)
– Loans originated and directly financed by a Housing Finance Agency
– Loans originated under the U.S.D.A | Exemptions for Appraisal and Escrow requirements detailed below. |
| Restricted Loan Features | – Balloon payments (some exceptions apply)
– Prepayment penalties (sooner than 36 months)
– Due-on-Demand (some exceptions apply)
– Negative amortization
– Rebates
– Increased interest rate after default | |
| Additional requirements & limitations related to covered transactions | Disclosures must be in writing and in a form the consumer may keep and must include the following statement:
“You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under this loan.”
For a closed-end credit transaction:
– APR
– Amount of the regular monthly (or other periodic) payment
– Amount of any balloon payment provided in the credit contract.
– Total amount consumer will borrow (Note amount)
For an open-end credit transaction:
– APR
– Credit Limit
– Minimum periodic payment for the draw period
– Minimum periodic payment for any repayment period
– Balance outstanding at the beginning of any repayment period
– Balloon payment (if applicable)
– A statement that the example payments show the first minimum periodic payments at the current annual percentage rate if the consumer borrows the maximum credit available when the account is opened and does not obtain any additional extensions of credit, or a substantially similar statement.
– A statement that the example payments are not the consumer’s actual payments and that the actual minimum periodic payments will depend on the amount the consumer borrows, the interest rate applicable to that period, and whether the consumer pays more than the required minimum periodic payment, or a substantially similar statement.
The Bank must receive written certification that the consumer has received homeownership counselling. | Requirements:
Appraisals
– A written appraisal must be completed by a certified or licensed appraiser including an interior physical visit.
– Appraisal Notification stating consumer will receive a copy of the appraisal.
– Appraisal Copy must be provided no later than 3 business days prior to consummation.
– Appraisal delivery timing may NOT be waived.
Exemptions:
Appraisals
– If the loan is a QM as defined by 1026.43(e) and (f)
– Loans in the amount of $32,400*Transactions secured by mobile home, boat, or trailer.
– Transaction to finance the initial construction of dwelling.
– Bridge loan with maturity of 12 months or less where purpose is connected to acquisition of dwelling intended to be principal residence.
– Reverse Mortgage
– Transactions secured by a new manufactured home and land.
– Transactions secured by a new manufactured home and not land, provided documentation is obtained showing the home was purchased less than 18 months prior to application, includes a cost estimate and has a valuation performed.
– Refinance meeting the requirements of 1026.35(c)(2)(vii).
Second Appraisal Requirement
(Flipped homes)
– The seller acquired the property 90 or fewer days prior to the date of the consumer’s agreement to purchase the property AND the price exceeds the seller’s purchase price by more than 10 percent OR
– The seller acquired the property 91 to 180 days prior to the date the consumer’s agreement to acquire the property and the price in the consumer’s agreement to acquire the property exceeds the seller’s purchase price by more than 20 percent.
The Bank may NOT charge for the second appraisal.
There are several exemptions, see 1026.35(c)(4)(vii). |
| Additional requirements & limitations related to covered transactions (cont.) | Prohibited acts or practices for high-cost (HOEPA) mortgages:
– Payment to a contractor under a home improvement contract from the proceeds of a high-cost mortgage.
– A creditor shall not refinance any high-cost mortgage to the same consumer into another high-cost mortgage unless the refinancing is in the consumer’s interest.
– With an open-end, high-cost mortgage, a creditor shall not open a plan for a consumer where credit is or will be extended without regard to the consumer’s repayment ability.
– With a closed-end, high-cost mortgage, a creditor must comply with the repayment ability requirements set forth in § 1026.43.
– A creditor may not pay the fees of a counselor or counseling organization for providing counseling conditioned on the consummation or account-opening of a mortgage transaction and cannot steer to a particular counselor or counseling organization.
– A creditor may not recommend or encourage default on an existing loan or other debt.
– Modification and deferral fees prohibited.
– Late fees must be disclosed, may not exceed 4% and no pyramiding of late fees is permitted.
– Payoff statement restrictions on fees and delivery.
– Financing of points and fees.
– Structuring loans to evade high-cost mortgage requirements. | Requirements
Escrow
Lender must establish escrow for real estate taxes, and mortgage-related insurance, prior to closing, for lender required items if HPML secured by first lien on principal dwelling,
Except:
– Lender meets all four Small Creditor Exemptions
(Asset size less than 2.640* billion in either of two preceding calendar years, originated 2,000 or fewer first liens secured by a dwelling in either of preceding two years, preceding year, originated at LEAST one first lien covered transaction in a rural or underserved area, and neither creditor nor affiliate maintains escrows (other than for HPMLs) between April 1, 2010, to June 17, 2021.
– Section 108 Exemption for Insured Depository Institution/Credit Union Only – must meet all four requirements.
Asset size less than 11.835* billion in either of two preceding calendar years, originated 1,000 or fewer first lien secured by borrower’s principal dwelling, preceding year, originated at LEAST one first lien covered transaction in a rural or underserved area and neither creditor nor affiliate maintains escrows (other than for HPMLs) between April 1, 2010, to June 17, 2021.
– Transaction secured by shares in a cooperative
– Transaction to finance the INITIAL construction.
– Temporary or Bridge loan with loan term of 12 months or less
– Reverse Mortgage
– Insurance premiums for condominiums or common interest properties which maintain a master policy.
Any escrow account set up due to transaction being an HPML must stay in escrow for a minimum of 5 years. Make sure the system has this flagged, so it is not cancelled in error. |
