There’s still some understandable confusion on the Ability to Repay (ATR)/Qualified Mortgage (QM) Rule and its impact on the Higher-Priced Mortgage Loan (HPML) requirements. Here are a few things to remember:
• A Small Creditor Portfolio QM or Balloon Payment QM is referred to as a higher-priced covered transaction (HPCT) only if the rate spread exceeds the Average Prime Offer Rate (APOR) by 3.5% or more. This “test” only dictates whether you qualify for a safe harbor (rate spread less than 3.5%) or a rebuttable presumption of compliance (rate spread 3.5% or more). These types of QM’s can be first-lien HPML’s and still qualify for the safe harbor.
• First-lien Small Creditor Portfolio QMs and Balloon Payment QMs with an APOR rate spread of 1.5 or more must still follow the HPML rules. This will likely mean that you also have to follow the escrow requirements (unless you’re exempt from them), but QMs are exempt from the HPML appraisal requirements. That’s good news, but don’t forget about the Regulation B appraisal requirements!
• If you have a non-QM HPML with a balloon payment, you must consider the balloon payment in the repayment analysis, regardless of when it occurs.
Yes, this stuff is confusing! Here are two takeaways:
1. Unless you’re exempt from the HPML escrow requirements, you generally have to escrow on any closed-end, first-lien consumer loan secured by a primary dwelling with a rate spread of at least 1.5 over the APOR; and,
2. If you have an HPML with a balloon, the only time you do not have to factor in the balloon payment in your repayment analysis is if the loan is a Balloon Payment QM.