If a loan approval in file corresponded with the bank’s consumer interest rate matrix, but a lower rate was given at origination, appearing to reduce the rate spread on a subordinate lien mortgage loan to 8.499 for HOEPA computation purposes….what should be a reviewers next step…while varying from the rate matrix can cause fair lending issues, it was not done on a prohibited basis…. Is this a HOEPA violation, or a fair lending concern or some other issue?
In general our bank’s rates and pricing do not result in any actual HOEPA loans where the APR exceeds the APOR by more than 6.5 or 8.5. But this loan is an uncommon subordinate lien on a no credit score borrower, while we originate few subordinate closed end loan liens and use credit scores to price our loans which is why this occurred.
You don’t have to worry about a HOEPA violation since it didn’t meet the threshold and there aren’t any rules against lowering rates to avoid HOEPA. If it is your policy to lower rates for everyone to avoid HOEPA you should have no fair lending concers either.
You do need to track loan policy exceptions. If another similarly situated borrower were not given the same discount/you don’t lower rates across the board to avoid HOEPA, it could result in a fair lending issue. Your FI should track all exceptions to policy and you should review those as part of a fair lending review.