Introduction
In the world of mortgages, there are various terms and acronyms that borrowers need to understand. One such term is HPML, which stands for High-Priced Mortgage Loan. This article aims to provide a comprehensive overview of what HPML is and its significance in the mortgage industry.
What is HPML?
Definition: HPML refers to a type of mortgage loan that carries a higher interest rate or fees compared to other loans. The specific criteria for categorizing a loan as an HPML are set by the Consumer Financial Protection Bureau (CFPB) in the United States.
Regulatory Background: The concept of HPML was introduced as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the 2008 financial crisis. The aim was to protect borrowers from potentially risky loans by imposing stricter regulations on high-priced mortgage loans.
Criteria for HPML
Annual Percentage Rate (APR): The primary criterion for categorizing a mortgage loan as an HPML is the Annual Percentage Rate. If the APR exceeds a certain threshold, the loan is considered an HPML. The specific threshold is determined by the CFPB and is subject to change over time.
Points and Fees: In addition to the APR, the CFPB also considers the points and fees charged by the lender. If the total points and fees exceed a certain percentage of the loan amount, the loan may be classified as an HPML.
Property Type: HPML regulations also take into account the type of property being financed. Loans secured by primary residences, second homes, or investment properties can all potentially be classified as HPMLs.
Implications of HPML
Stricter Requirements: Lenders offering HPMLs are subject to additional regulatory requirements. These requirements include conducting a thorough assessment of the borrower’s ability to repay the loan, providing detailed disclosures, and adhering to specific underwriting standards.
Escrow Accounts: HPML regulations also mandate the establishment of escrow accounts for certain types of loans. Lenders are required to collect and hold funds for property taxes and insurance, ensuring that these obligations are met.
Additional Protections for Borrowers: The HPML regulations are designed to provide additional protections for borrowers. By imposing stricter requirements on lenders, the aim is to prevent predatory lending practices and ensure that borrowers have a clear understanding of the terms and costs associated with their mortgage loans.
Conclusion
In summary, HPML stands for High-Priced Mortgage Loan and refers to a type of mortgage loan that carries a higher interest rate or fees compared to other loans. The criteria for categorizing a loan as an HPML include the Annual Percentage Rate (APR), points and fees, and the type of property being financed. HPML regulations impose stricter requirements on lenders and provide additional protections for borrowers, aiming to prevent risky lending practices and ensure transparency in the mortgage industry.
References
– Consumer Financial Protection Bureau: www.consumerfinance.gov
– Dodd-Frank Wall Street Reform and Consumer Protection Act: www.sec.gov/spotlight/dodd-frank.shtml
