What is a Higher Price Mortgage Loan? Let’s start with understanding what the price of a mortgage is. At my branch we have the ability in some cases for instance to fund a loan with no lender fees and even can give credits that may help pay for insurance and title charges or help cover pre paid items.
Some of these “no cost” loans are actually classified as “higher price mortgages” or HPML.
Hey wait how can something with no cost be higher priced?
Well it must carry a higher rate. Right? Well not exactly. Usually conventional loans have higher interest rates than FHA loans and a conventional loan at a higher note rate may not be classified as higher priced where a lower rate no closing cost FHA loan may be. What? Confused yet?
Well the state and federal government imposes limitations on mortgage lenders as to what they can charge right?
Yes they do.
In most states the limit to the amount of fees a lender can charge is about 3% to 5% total and some of that includes part of your odd days interest payment and the title company closing fees in Indiana. So yes the government protects you from being totally raped (our total lender charges usually do not exceed 2% if we have any at all) The rule called section 32 protects consumers from “high cost” loans… Well I know my loan is not high cost because that is basically illegal and new QM rules limit lenders to 3% if they want to avoid litigation….so then what is this “higher price” business?
No one wants a higher price loan do they?
Well…. it just depends.
If your circumstance dictates it or say….. you choose to put little money down… Or you require a government subsidized program that mandates additional mortgage insurance you may not have much choice and it is very likely your loan will be classified as “higher price”
What a higher price loan is in a nut shell is a loan where the APR is significantly higher than the average loan at a given time. 1.5% higher than than the average APR published weekly by Freddie Mac. It is important to realize that the average mortgage borrower is not a first time buyer with little to no money down.
Most FHA loans over 90% loan to value today will carry higher APRs due to the new inclusion of mortgage insurance that lasts the entire life of the loan.
As a consumer you should understand that the average borrower in America today is putting down larger down-payments or are refinancing with equity so they are not in the highest loan to value risk pools or in need of a higher price type of loan. These higher price disclosures are intended to educate borrowers that they may have other options and perhaps begin to ween us off of low down payment government loans. In most cases conventional mortgages though they may have higher note rates will have lower APRs than their lower note rate FHA counterparts because the monthly MI eventually drops off where FHA over 90% LTV is with you forever.
Here is a link to the FFIEC calculator to see if your loan is higher priced.
You will notice that the calculator does not ask questions about loan programs or loan to value. Because FHA today has mortgage insurance for the life of the loan and it is reflected in APR as a “Price” of doing business most FHA loans with under 10% down today are coming up as Higher Priced no matter what the note rate or closing costs.
More to come…
More Official Info Here
James Werner
Nmls ID # 137331
765-532-1604
Hoosier Lender Indiana Mortgage Blog 