Paragraph 4(a)(12) – 5..i. of the Regulation C Commentary states, “If a rate is reset after a lock-in agreement is executed (for example, because the borrower exercises a float-down option or the agreement expires), then the relevant date is the date the financial institution exercises discretion in setting the rate for the final time before final action is taken. The same rule applies when a rate-lock agreement is extended and the rate is reset at the same rate, regardless of whether market rates have increased, decreased, or remained the same since the initial rate was set.” The language clarifies that the rate-set date is the date the financial institution exercises discretion in setting the rate for the final time before final action is taken.
Your secondary market team correctly notes that using the date of reset could result in a different APOR, which in turn could result in a different rate spread. While that may be an inconvenient result that is the result.
Your secondary market team is working hard to make this issue go away. Their argument that the rate is not “reset” is creative, but is pretty much blunted by the language of the Commentary that states, ” The same rule applies when a rate-lock agreement is extended and the rate is reset at the same rate.”
The secondary market team’s concerns about the impact of a change in the APOR on HOEPA, HPML and HCPT are valid. All three sections (HOEPA – section 1026.32, HPML – Section 1026.35, and HPCT – 1026.43) require use of the APOR as of the date the rate is set for the final time before consummation. For example on November 6, 2017 the APOR for a 15 year fixed-rate non jumbo loan was 3.34. If the APR was 4.84 the transaction’s rate spread of 1.50 would not result in a Higher Priced Mortgage loan for purposes of 1026.25. If the rate was reset at the same rate on November 13, 2017 the APOR of 3.31 on that date results in a rate spread of 1.53, which makes the loan a HPML.