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HPCT vs. HPML

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  • #4023
    kschliebe
    Participant

    I am trying to sort out the difference between higher priced covered transactions and higher priced mortgage loans…
    We do not meet the definition of small creditor, so the 3.5 or more percentage point difference in 1026.43(b)(4) on certain 1st lien covered transactions doesn’t affect us. Does that mean HPCT would essentially be the same as HPML for our bank?

    #4026
    rcooper
    Keymaster

    They have slightly different thresholds. The big difference is HPML is principal dwelling secured and HPCT is dwelling secured. In addition, there is an additional threshold for jumbo HPMLs. So, just because one applies won’t always mean that both apply.

    Higher Priced Mortgage Loan (HPML)
    Closed end consumer credit secured by a principal dwelling with APR that exceeds the APOR by:
    • 1.5% or more – first lien
    • 2.5% or more – first lien jumbo
    • 3.5% or more – subordinate lien

    Higher Priced Covered Transaction (HPCT) 12 CFR 1026.43(b)(4):
    Consumer credit secured by a dwelling with APR that exceeds the APOR by:
    • 1.5% or more – first lien loans
    • 3.5% or more – subordinate lien loans

    #4027
    kschliebe
    Participant

    Got it. Thanks! 🙂

    #5477
    avolentine
    Participant

    Robin,

    We meet the definition of small creditor and we are confused about HPCT and HPML. Are principal dwellings AND all other dwellings covered under HPCT?

    For example, we have a 1st lien primary residence loan that is a Small Creditor QM priced at 5.0% when the APOR is 2.90% so we have priced it 2.10% over the APOR. Does this make it a HPML but not a HPCT? If so is the only requirement that we would have to escrow? (We aren’t exempt from the Small Servicer Escrow Rules as we were escrowing prior to 1/13).

    Thank you!

    #5485
    rcooper
    Keymaster

    You’ll look to the scope of 1026.43 to determine what transactions are covered. But, yes, typically a dwelling secured loan is covered unless one of the exemptions apply (Some exemptions include: HELOCs, loans secured by time share, reverse mortgage, temporary/bridge loans, construction phase of 12mths or less of constr./perm, and others you can find here: https://www.ecfr.gov/cgi-bin/text-idx?SID=c9cc74255c39fcc4f7169558a682f32d&node=12:9.0.1.1.1.5.1.13&rgn=div8).

    If you have a loan secured by a principal dwelling that exceeds the APOR by 2.10% and you have qualified it under the Small Creditor QM option then it would not be HPCT since it does not meet/exceed the 3.5% threshold; so you would receive the QM Safe Harbor. However, since it is a closed end, principal dwelling secured transaction that does exceed the 1.5% HPML threshold for 1st lien transactions then it would be an HPML and you would need to comply with the HPML requirements including the escrow and appraisal rules unless one of the exemptions to those specific rules applies. (You can find the HPML rules and exemption here: https://www.ecfr.gov/cgi-bin/text-idx?SID=c9cc74255c39fcc4f7169558a682f32d&node=12:9.0.1.1.1.5.1.5&rgn=div8)

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