Higher-Priced Mortgage Rules in Effect

by CUNA Councils

by Jami Weems

 

 

In June, amendments to rules affecting higher-priced mortgages took effect, making this an opportune time for credit unions to review mortgage lending policies and procedures to ensure compliance.

The concept of higher-priced mortgages has actually been around since 2008 when the Federal Reserve proposed amendments to Regulation Z.

To protect consumers, the Fed introduced a new category of mortgages—the higher-priced mortgage. This new category of loans and protections basically applied to all closed-end loans secured by a consumer’s principal dwelling that met a certain threshold.

To calculate the threshold, a lender reviews the loan’s annual percentage rate (APR) in relation to an index, also known as the Average Prime Offer Rate (APOR). The Fed’s final rule establishing higher-priced mortgage requirements was effective Oct. 1, 2009, with the escrow component effective April 1, 2010.

Let’s consider the amendments, which went into effect June 1, 2013.

As mentioned, an index controls what determines a higher-priced mortgage. The new definition of a higher-priced mortgage is a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an APR that exceeds the APOR by:

  • 1.5 or more percentage points for a first lien that isn’t a jumbo loan;
  • 2.5 or more percentage points for a first lien that is jumbo loan; or
  • 3.5 or more percentage points for a subordinate lien.

This new definition has changed slightly, adding threshold requirements for jumbo loans to the current definition.

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