I was in a bank this past week and discovered a loan which on the surface appeared to be a Higher-priced Mortgage Loan (HPML). This loan was secured by a first lien, had a term of five years, an APR of 5.537%, and the rate was locked January 10th
When I input this information, specifically the APR, into the FFIEC rate spread calculator (exactly as it appeared on the Truth in Lending disclosure – 5.537), I got a rate spread of 1.50% indicating that the loan was a HPML. However, if I input the APR as 5.53, the FFIEC calculator indicated “NA” meaning the loan was not an HPML. While this may seem like an insignificant detail, it does have the potential to cause compliance problems not only with TIL requirements but also with HMDA reporting.
A little research resulted in the following (found at the “help” link of the FFIEC rate spread calculator):
Annual Percentage Rate (APR)
APR should be entered in percentage format and data entered should be in the range 00.00 to 99.99%. For example, an APR of 4.875% should be entered 04.88, including all leading and trailing zeros. If the figure is more than two decimal places, round the figure or truncate the digits beyond two decimal places.
This is pretty clear that bank has the option to either round the number up or truncate the digits beyond two decimal places. Thus, depending on the input method you choose, you may or may not have a HPML. Also keep in mind that your examiners may be inputting the information differently than you. Therefore, you may need to educate them.
The best tip I can offer is this…whatever option you choose, make sure that you apply it consistently across the board. This approach will also ensure consistent reporting for HMDA purposes.
David’s banking career began as a field examiner for the FDIC in 1990. He later became a Compliance Officer and Loan Officer for a small bank. In 1993, he established Banker’s Compliance Consulting. Along with his amazingly talented Team, he has written numerous compliance articles for prestigious banking publications and has developed compliance seminars that Banker’s Compliance Consulting produces.
He is an expert in compliance regulations. He is also a motivational speaker and innovative educator. His quick wit and sense of humor transforms the usually tiring topic of compliance into an enjoyable educational experience. David is on the faculty of the American Bankers Association National Compliance Schools and has served on the faculty of the Center for Financial Training for many years. He also is a frequent speaker at the ABA’s Regulatory Compliance Conference. He is also a trainer for hundreds of webinars, is a Certified Regulatory Compliance Manager (CRCM) and has been a BankersOnline Guru for many years. The American Bankers Association honored David with their Distinguished Service Award in 2016.
David and his wife Karen have three adult children, four grandchildren (none of whom live at home!) and two cats (of which Dave is allergic … the cats, not the children!). They recently moved to an acreage outside of Lincoln, Nebraska where he gets to play with his tractor. When possible David can be found fishing, making sawdust in his shop, or playing the guitar and piano. He also enjoys leading worship at his church.