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When a rate has been locked via a rate lock agreement, and the Borrower later requests for points to be paid so that the rate decreases, what is the the reportable Date Rate Set for use in calculating the Rate Spread on the HMDA LAR?
Example: The rate was originally locked on 03/29 (6.250%), but on 04/05 the Borrower chose to pay points to decrease the interest rate to 6.000%.
Despite the original rate of 6.250% still serving as the base rate and not being expired, would you say the date the points were applied to achieve the Net Rate of 6.000 would be a HMDA reportable reset date…meaning 04/05…or is there a case to be made for keeping it at 03/29 (for HMDA…not speaking of TRID)? Thanks for your help…
5. Rate-set date. The relevant date to use to determine the average prime offer rate for a
comparable transaction is the date on which the interest rate was set by the financial institution
for the final time before final action is taken (i.e., the application was approved but not accepted
or the covered loan was originated).i. Rate-lock agreement. If an interest rate is set pursuant to a “lock-in” agreement between the financial institution and the borrower, then the date on which the agreement fixes the interest rate is the date the rate was set. Except as provided in comment 4(a)(12)-5.ii, if a rate is reset after a lock-in agreement is executed (for example, because the borrower exercises a float-down option or the agreement expires), then the relevant date is the date the financial institution exercises discretion in setting the rate for the final time before final action is taken. The same rule applies when a rate-lock agreement is extended and the rate is reset at the same rate, regardless of whether market rates have increased, decreased, or remained the same since the initial rate was set. If no lock-in agreement is executed, then the relevant date is the date on which the institution sets the rate for the final time before final action is taken.
When I presented this scenario to the ABA Compliance Desk, I was told, “Based on your description and the commentary, it appears to be the date on which the borrower requested a rate change and the bank agreed to it.”Another online forum had a bit more “candor” in their response when they said, “If the borrower renegotiated the interest rate to a lower rate with the lender on 04/05 and the lender agreed, I guess I fail to see why there is a question as to what date the final interest rate was last set?”
To this, our line of business answered the following:
“Their answer does not address the situation we have had. At a time a rate is locked, there is a variety of rate and point options available to the customer. When they choose to buy the rate down within the lock, they are going back to the original rate point combination at the original lock date and where the market is today is irrelevant. This is industry standard and is what our investors do on locks with them. In this case the system is showing the date rate set correctly.”
The only other clarification I can provide is that it falls into the following open-ended statement in regulatory commentary:
“Except as provided in comment 4(a)(12)-5.ii, if a rate is reset after a lock-in agreement is executed (for example, because the borrower exercises a float-down option or the agreement expires), then the relevant date is the date the financial institution exercises discretion in setting the rate for the final time before final action is taken.”
To me this scenario falls into the reset category, despite it not being specifically mentioned as an example. We are not restricted to their couple examples as they are only examples of a larger number of scenarios.
However, when I look up what a interest rate reset includes via Google, all it speaks of ARM loans and their periodic resets.
Another thought…so when we have an option to one-time float down, and that is reportable, wouldn’t an option to buydown be reportable as well…or is float down only applicable, because it is tied to a later market rate at a later date?
Do you have any incite and references to which I can point that makes the date of a buydown of the rate a HMDA reportable event that changes the previous Date Rate Set (impact on the Rate Spread calculation)?
I concur with the answer provided by the other sources you used, use the date on which the interest rate was set by the financial institution
for the final time before final action is taken.What is the aversion to using the date the rate changed? Is this an input issue? Will it result in a system change?
Hi Jack…the aversion stems from the pricing options to pay down the interest rate via points being tied to the original/previous rate lock terms, so despite the affect to the “Net Rate” (decreased) at the time of later execution, the LOB interprets maintaining the original/previous lock’s Date Rate Set makes more sense and is in line with other regulatory guidance outside of HMDA (APOR and Rate Spread), not to mention pricing communications with Secondary Market investors. They believe the HMDA regulatory commentary doesn’t directly address this situation, despite our pointing out the examples were not the extent of Date Rate Set change considerations. They were just that…a couple of examples. We met and spoke on this again recently. One of them wants to check with LOS compliance contacts from their previous life elsewhere, and we are trying to have a meeting set up with an ABA mortgage compliance specialist. We definitely agree that it is most ideal if all regulatory guidance pertaining to one data element were perfectly aligned. We would prefer it…but our interpretation on this as it pertains to HMDA alone seems most accurate, and it appears others in the industry agree. I appreciate you feedback on this. Thanks!
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