A first-lien purchase loan of $260,000 prices at an APR 7.1 percentage points above the average prime offer rate. Assuming this is a covered principal-dwelling transaction and no exclusion applies, does its APR spread trigger HOEPA high-cost status?
Correct Answer
D) High-cost: a first lien over 6.5 points above APOR meets the test
D. The stated APR spread triggers the first-lien high-cost test. Use the HOEPA APR-spread test, not the separate higher-priced-mortgage test. For this $260,000 first lien, compare 7.1 percentage points with the 6.5-point threshold. The spread exceeds it by 0.6 points. Scope and exceptions: Coverage and absence of exclusions are stipulated. Other lien/property situations and the separate points-and-fees test require their own analysis. Source: 12 CFR 1026.32(a)(1)(i)(A)–(C) — https://www.consumerfinance.gov/rules-policy/regulations/1026/32/
Why This Is the Correct Answer
D. The stated APR spread triggers the first-lien high-cost test. Use the HOEPA APR-spread test, not the separate higher-priced-mortgage test. For this $260,000 first lien, compare 7.1 percentage points with the 6.5-point threshold. The spread exceeds it by 0.6 points. Scope and exceptions: Coverage and absence of exclusions are stipulated. Other lien/property situations and the separate points-and-fees test require their own analysis.
Why the Other Options Are Wrong
Option A: High-cost: any loan over 5 points above APOR meets the test
Five percentage points is not this APR threshold.
Option B: Not high-cost: the first-lien test is 8.5 points above APOR
8.5 points does not apply to this ordinary first-lien scenario.
Option C: Not high-cost: the APR test applies only to refinance transactions
A purchase transaction is not excluded merely because it is not a refinance.
Exam Tip
Check scope, lien position and the precise test before comparing numbers.
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