HPML, HOEPA & ATR/QM
~13 min read · Separate high-priced from high-cost loans and apply ability-to-repay and QM tests.
Two overlapping alarm systems price-check every loan: HPML (higher-priced) triggers at small APOR spreads and adds escrow/appraisal duties; HOEPA (high-cost) triggers at bigger spreads or heavy points and fees and bans whole feature sets. Layered under both: the Ability-to-Repay rule and its QM safe harbor.
HPML: higher-priced mortgage loans
A first-lien loan is an HPML when its APR exceeds the Average Prime Offer Rate (APOR) for a comparable transaction by 1.5 points or more (3.5 for subordinate liens, 2.5 for first-lien jumbos). Consequences: a mandatory escrow account for at least five years, a full-interior appraisal by a licensed appraiser — with a second appraisal free to the borrower for certain rapid flips — and no reliance on collateral value without assessing repayment ability.
- Trigger: APR ≥ APOR + 1.5 (first lien) / +3.5 (subordinate)
- Five-year escrow requirement
- Interior appraisal; second appraisal on quick flips
HOEPA: high-cost mortgages
HOEPA/Section 32 triggers on any of three tests: APR exceeding APOR by more than 6.5 points (first liens; 8.5 for subordinate/small first liens), points and fees exceeding 5% of the total loan amount (adjusted thresholds for small loans), or a prepayment penalty running past 36 months or exceeding 2% of the amount prepaid. High-cost consequences: special pre-closing disclosures, mandatory homeownership counseling certification, and bans on balloon payments (with narrow exceptions), prepayment penalties, fees for payoff statements, and refinancing into another HOEPA loan within a year absent borrower interest.
- Triggers: APOR + 6.5 APR, 5% points-and-fees, or prepay-penalty terms
- Requires counseling certificate before closing
- Bans balloons, prepayment penalties, and flipping into new high-cost loans
ATR and Qualified Mortgages
The Ability-to-Repay rule requires a reasonable, good-faith determination — verified through the eight underwriting factors (income/assets, employment, payment on this loan, other loans on the property, mortgage-related obligations, other debts, DTI or residual income, credit history) — that the borrower can repay. A Qualified Mortgage earns a presumption of compliance: no toxic features (no interest-only, negative amortization, balloon, term over 30 years), points and fees within 3% of the loan amount (larger allowances on small loans), and pricing/verification standards under the current General QM rule. Safe harbor for non-HPML QMs; rebuttable presumption for higher-priced QMs.
Worked example
A $200,000 first-lien fixed loan prices at APR 8.9% when APOR is 6.5%. Points and fees total $8,400. Is it HPML, HOEPA, or QM — and what obligations attach?
Spread: 8.9 − 6.5 = 2.4 points above APOR. HPML test: ≥1.5 → yes, HPML: mandatory 5-year escrow, full interior appraisal, second appraisal if it's a rapid flip. HOEPA APR test: needs >6.5 above APOR → 2.4 fails that trigger. HOEPA fee test: 5% of $200,000 = $10,000; $8,400 is under → not high-cost. QM: $8,400 is 4.2% of the loan — above the 3% points-and-fees cap → cannot be QM; the lender must satisfy full ATR through the eight factors and, as a higher-priced non-QM, holds no presumption at all. Final: HPML yes, HOEPA no, QM no — each test independent, each with its own consequence set.
Common exam pitfalls
Merging the HPML and HOEPA thresholds.
HPML starts at APOR +1.5; HOEPA's APR trigger is +6.5. A loan can easily be higher-priced yet not high-cost.
Forgetting HOEPA's second and third triggers.
Points-and-fees over 5% or a long/large prepayment penalty trigger high-cost status even at moderate APRs.
Calling any ATR-compliant loan a QM.
QM adds feature bans and the 3% points-and-fees cap on top of ATR — compliance with one is not the other.
1.5 raises the price flag, 6.5 or 5% sounds the siren, 3% and no toxins earn the QM shield.
Recap
- HPML: APR ≥ APOR + 1.5/2.5/3.5 by lien type → escrow 5 years + interior appraisal
- HOEPA: APOR + 6.5 APR, 5% points/fees, or heavy prepay penalty → counseling + feature bans
- High-cost bans: balloons, prepayment penalties, payoff fees
- ATR: eight verified factors, always
- QM: no toxic features, ≤3% points/fees, safe harbor when not higher-priced
- Each regime tests independently — run all three
VIDEO LESSON
Watch this lesson on video — free
Prove it: 10 questions on this topic
Every lesson ends with a ten-question check in the free course — your progress syncs between the web and the EstatePass app.