QUESTION
We are having an internal debate as to how the HPML APOR is
determined when a rate lock has expired and the rate is relocked.
When the rate lock expires, we need to relock the interest rate
which provides a new lock in date, which in turn results in a new APOR being
used for the purposes of the HPML test. This can be problematic in an
improving market. For example, in instances in which we have relocked the
interest rate and terms identical to those set forth in the expired lock, the
new APOR is lower and the loan may now fail the HPML test. This situation
often arises when the loan officer allows the rate to expire in order to enable
the loan officer to relock at the same rate and pricing without charging the
borrower a rate lock extension fee.
Our Secondary Department has determined that the APOR for the HPML
test should be based on the rate sheet date used to price the loan as that is
how the rate is “set”.
Can you please provide us with some guidance as to the date to be
used? Also, if the rate lock has expired
completely, can we simply extend the rate lock keeping the same rate/pricing
and lock in date, as opposed to relocking the loan?
ANSWER
For the purposes of the HPML test, the APOR should be based on the
date the rate is actually locked pursuant to the last rate lock
agreement.
See Official
Commentary to paragraph 35(a):
“2. Rate
set. A transaction's annual percentage rate is compared to the average
prime offer rate as of the date the transaction's interest rate is set (or
“locked”) before consummation. Sometimes a creditor sets the interest rate
initially and then re-sets it at a different level before consummation. The
creditor should use the last date the interest rate is set before
consummation.”
See also
FFIEC’s “Data Requirements for the Rate Spread Calculator”:
“If an interest
rate is set pursuant to a "lock-in" agreement between the lender and
the borrower, then the date on which the agreement fixes the interest rate is
the date the rate was set. If a rate is re-set after a lock-in agreement is
executed (for example, because the borrower exercises a float-down option or
the agreement expires), then the relevant date is the date the rate is re-set
for the final time before closing. If no lock-in agreement is executed, then
the relevant date is the date on which the institution sets the rate for the
final time before closing."
As to “extending” a rate, when the rate lock agreement has
completely expired instead of relocking, you cannot do so. If the rate has expired completely, the loan
has started to float. Thus, you need to relock.
Joyce
Wilkins Pollison
Director/Legal
& Regulatory Compliance
Lenders Compliance Group
