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Do temporary buydowns affect HPML/HCML/QM/APR depending on who pays? If the borrower pays and the cost is built into pricing, must the fee be considered when calculating any of the above?
Answer by Jack Holzknecht:
“APR – The APR is separately disclosed and it is also used to determine HPML and the HCML rate status. Regardless of who pays the discount points and regardless of the duration of the buydown the reduced rate lowers the APR. When the buydown is a temporary buydown a “composite” APR calculation is required. Discount points paid by the borrower are included in the finance charge, which increases the APR. Discount points paid by someone other than the borrower are not included in the finance charge.Total Points and Fees – The Total Points and Fees are used to determine the HCML high fee status and to determine the Ability to Pay. The total finance charge, less interest, is included in the calculation of the Total Points and Fees. Borrower-paid discount points may be excluded from the Total Points and Fees calculation if certain conditions in Section 1026.32(b)(1)(E) and (F) are met.”
Note: Under the ATR/QM rules there are points and fees limitations for QMs and the QM safe harbor vs. presumption of compliance is determined based on whether or not the loan is a HPCT under the ATR rules.
Total points and fees – So if the borrower pays the amount to setup the temporary buydown is that included in the Total Points and Fees? We are not collecting discount points we are collecting buydown funds.
Yes, it would be included in the points and fees calculation unless one of the exceptions in 1026.32(b)(1)(E) or (F) apply. Here’s a link to that section of Reg Z that houses those exceptions: https://www.gpo.gov/fdsys/pkg/CFR-2016-title12-vol9/pdf/CFR-2016-title12-vol9-sec1026-32.pdf.
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