A closed-end consumer purchase loan secured by a first lien on the borrower’s principal dwelling is within the applicable Freddie Mac size limit. Its APR is 7.9%; comparable-transaction APOR on the last date its rate was set before consummation is 6.2%. Does it meet Regulation Z’s higher-priced mortgage loan APR-spread definition?
Correct Answer
D) Yes: 1.7 points over APOR clears the 1.5-point conforming first-lien test
D. The 1.7-percentage-point spread meets the 1.5-point threshold. Subtract APOR from APR: 7.9 − 6.2 = 1.7 percentage points. Section 1026.35(a)(1)(i) uses at least 1.5 points for the stated first-lien size category. Scope and exceptions: Classification does not prove every escrow or appraisal provision applies without an exemption analysis. HPML and HOEPA high-cost tests are separate; the latter also has other triggers and thresholds. Source: Section 1026.35(a)(1)(i) and comment 35(a)(1)-2 — https://www.consumerfinance.gov/rules-policy/regulations/1026/35/
Why This Is the Correct Answer
D. The 1.7-percentage-point spread meets the 1.5-point threshold. Subtract APOR from APR: 7.9 − 6.2 = 1.7 percentage points. Section 1026.35(a)(1)(i) uses at least 1.5 points for the stated first-lien size category. Scope and exceptions: Classification does not prove every escrow or appraisal provision applies without an exemption analysis. HPML and HOEPA high-cost tests are separate; the latter also has other triggers and thresholds.
Why the Other Options Are Wrong
Option A: No: the loan would need 6.5 points over APOR to fall under these rules
It substitutes a high-cost-mortgage threshold for the HPML test.
Option B: No: a first lien only becomes higher-priced at 2.5 points over the APOR
The 2.5-point threshold is for the larger first-lien category.
Option C: Yes, but only because the transaction is a purchase rather than a refinance
Purchase status alone does not produce the classification.
Exam Tip
Match the coverage and loan-size category before comparing APR with the dated APOR.
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