The qualified mortgage rule is the talk of the town these days. But let us not forget that several rules have been issued by the Consumer Financial Protection Bureau, including
HOEPA is not dead!
The amendments, which also take effect January 10, 2014, make some pretty substantive changes to the existing high cost loan restrictions.
Before I get to those changes, I think it’s important for some context: Congress could have killed off HOEPA; but the mere fact that it still exists means those inside the Beltway fully believe there will be an active “Non-Q” (non-QM and non-QRM) lending space. After all, if they thought otherwise, even they’re smart enough to know that amending HOEPA would have been an act of futility.
That makes HOEPA a rather different animal than the Ability-to-Repay, QM and [coming] QRM rules. When originators find a way—and I believe they will—to make non-Q loans, HOEPA will play a critical role.
It’s important, then, to make sure that the new HOEPA calculations are fully automated in your workflow. Although I don’t mean to sound preachy here, this is where automated solution service providers can come in pretty handy.
Now, on to the rule itself.
First and foremost, new HOEPA will, for the first time, include purchase-money transactions as well as those of the open-ended variety. Until now, HOEPA only applied to refinances of closed-end loans, period.
Next, the rate and fees calculations are tougher. Congress and the CFPB have moved on from the outdated notion of using Treasuries as a benchmark, realizing that they make a very poor indicator of mortgage interest rates; and instead are adopting the Average Prime Offer Rate. The margins for the rate calculations also shrink slightly.
[Interestingly, many question whether the APOR is also a truly effective barometer of market rates, as it is only a measure of purchase-money loans.]
The fees cap drops to 5%, which, as we know from the FNMA 5% fee calculation that’s been around for years, can be a tight squeeze for smaller loan sizes. Fortunately, the CFPB did meet the industry half-way by allowing lenders to exclude up to two discount points if they are deemed bona-fide, and by providing a higher, 8% cap for loans under $20,000.
Finally, Congress followed North Carolina’s lead that effectively bans harsh prepayment penalties, by allowing early payoff penalties to push a loan into high-cost land regardless of the loan’s APR or fees.
As per the usual, if a loan is high cost, it is not illegal per se; rather, additional restrictions apply. And no doubt, investors will continue to refuse to buy em.
All pretty straightforward and easy to understand so far. But, as they say, the devil’s in the details
which I’ll go into
