A first-lien refinance on the borrower's principal dwelling prices at an APR of 12.9%. The average prime offer rate for a comparable transaction is 6.1%. Points and fees come to 3% of the loan amount and there is no prepayment penalty.
Correct Answer
A) High-cost: the APR is 6.8 points over APOR, past the 6.5-point first-lien bar
The three coverage tests are independent, and tripping any one of them is enough. Here 12.9 less 6.1 is 6.8 points, which exceeds the 6.5-point spread that applies to a first-lien transaction, so the loan is high-cost whatever the other figures say. Other choices: points and fees under 5% only means that test was not tripped, not that none was; 8.5 points is the subordinate-lien spread and using it on a first lien is the standing confusion here; and a principal dwelling is a condition of HOEPA applying at all, not a trigger by itself. Source: 12 CFR 1026.32(a)(1)(i)(A)
Why This Is the Correct Answer
The three coverage tests are independent, and tripping any one of them is enough. Here 12.9 less 6.1 is 6.8 points, which exceeds the 6.5-point spread that applies to a first-lien transaction, so the loan is high-cost whatever the other figures say. Other choices: points and fees under 5% only means that test was not tripped, not that none was; 8.5 points is the subordinate-lien spread and using it on a first lien is the standing confusion here; and a principal dwelling is a condition of HOEPA applying at all, not a trigger by itself. Source: 12 CFR 1026.32(a)(1)(i)(A)
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