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We have our first HPML, non QM that is a flip. Would it be a fair lending issue to lower the rate to keep it from being an HPML to avoid the second appraisal? As long as we did this consistently in these rare cases?
On the surface I see the same fair lending risk as with not doing HPMLs at all. It would be best if your policy addresses this and if/how rates will be adjusted. You should also increase your fair lending monitoring of this area to ensure there isn’t any disparate impact. See the Q&A below from a similar question:
Question: We currently offer HPML’s but may be considering not offering them due to the regulatory requirements and the additional appraisal requirement for flips. If we decide to eliminate offering HPML’s do we need to set our rates low enough to avoid having an HPML or can we deny the loan because we do not offer that product? Will we be scrutinized by the Regulators for not offering HPML’s?
Can you provide some guidance that we should consider or think about in making this decision?
ANSWER: In regards to not offering HPMLs. If you start denying loans because they are HPMLs it could create disparate impact issues if the majority of denials are a protected class. Or if for some reason you do make a loan that is an HPML but deny others this could create fair lending issues as well. Some banks avoid HPMLs by lowering their rates or adjusting their rates down. If you do try to avoid the HPML threshold triggers, the simplest and least risky way would be to look at your overall pricing and lower it to avoid the HPML triggers. Some banks also adjust rates if they trigger HPML. I wouldn’t recommend this as it could also create fair lending issues if you adjust some rates down more than others and therefore, this approach would have more compliance risk. If you choose to go this route then you would want to clearly state your policy is not to make HPMLs and detail how rates are to be adjusted on loans that trigger HPML status (e.g.: first lien = APOR + 1.49 % or subordinate lien = APOR + 3.49%). This would help minimize fair lending concerns by ensuring that two loans on the same day would receive the same rate to avoid the trigger rather than allowing individual loan officers the discretion of how much to lower the rate.
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