A higher-priced mortgage loan (HPML) is a type of mortgage that comes with a higher interest rate than the average prime offer rate (APOR) for a similar mortgage. In other words, it is a loan that has a higher cost of borrowing. The threshold for an HPML is set by the Consumer Financial Protection Bureau (CFPB), which is currently set at 1.5% above the APOR for a first-lien mortgage loan.
HPMLs are often given to borrowers who have lower credit scores or who have a higher risk of defaulting on their loans. This higher risk of default is reflected in the higher interest rate charged for an HPML. The lender is essentially compensating for the additional risk they are taking on by charging a higher interest rate.
One important thing to note is that HPMLs are subject to additional regulations and requirements under the Truth in Lending Act (TILA) and the Home Ownership and Equity Protection Act (HOEPA). These regulations are designed to protect borrowers from predatory lending practices, which can occur when lenders take advantage of borrowers who may not fully understand the terms of their loans.
For example, lenders are required to provide borrowers with additional disclosures, including a statement that the loan is an HPML and a warning that the borrower may have difficulty repaying the loan. Additionally, lenders are prohibited from charging certain fees, such as prepayment penalties, on HPMLs.
Borrowers who are considering taking out an HPML should carefully consider their financial situation and their ability to repay the loan. Because HPMLs come with a higher cost of borrowing, they can be more difficult to repay than other types of loans. Borrowers may want to consider other options, such as a lower-priced mortgage loan or a different type of loan altogether.
Higher-priced mortgage loans can be a useful tool for borrowers who need to obtain financing but have a higher risk of default. However, borrowers should carefully consider the terms of these loans and ensure that they fully understand the risks involved before agreeing to the loan. Additionally, lenders must comply with strict regulations when offering HPMLs to ensure that borrowers are not taken advantage of and that they have the information they need to make informed decisions about their financing options.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.
