A High-Priced Mortgage Loan (HPML) is a consumer loan secured by the borrower's principal dwelling where the APR exceeds the Average Prime Offer Rate (APOR) by a defined threshold. HPML status triggers specific regulatory requirements under Regulation Z.
HPML APR Thresholds
- ✦First lien: APR exceeds APOR by 1.5 percentage points or more.
- ✦Jumbo first lien (above conforming limit): APR exceeds APOR by 2.5 percentage points or more.
- ✦Subordinate lien: APR exceeds APOR by 3.5 percentage points or more.
Mandatory Escrow
HPML loans secured by the borrower's principal dwelling must have an escrow account for property taxes and hazard insurance. The escrow requirement applies for at least the first 5 years. This is significant for non-QM lenders and hard money programs that normally do not require escrow -- HPML status forces escrow on those loans.
Enhanced Appraisal Requirements
HPML loans require a written appraisal conducted by a certified or licensed appraiser with an interior physical inspection. Desk reviews and AVMs do not satisfy the HPML appraisal requirement. For loans where the purchase price is significantly lower than the seller's acquisition price within 180 days (a flip), a second appraisal is required.
Ability to Repay
HPML loans that are not Qualified Mortgages carry heightened liability under Regulation Z's Ability to Repay rules. Lenders making non-QM loans at HPML pricing should ensure the underwriting documentation of ATR is thorough.
Aria on vicariointel.com can explain HPML triggers and requirements for a specific loan scenario, including whether the rate quoted will create HPML status.
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