I am going to presume that by “high cost mortgage loan” you are referring to the term Higher Priced Mortgage Loan or HPML. Here is a definition of HPML by the Federal Reserve:
The rule’s definition of “higher-priced mortgage loans” will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the “average prime offer rate,” based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. Link
If the loan is an HPML secured by the borrower’s principal residence the lender must verify the borrower’s income and assets and ability to repay. There are restrictions on prepayment penalties and the loan must have an escrow account.
Here is a link to the FFIEC website where you can find the “Average Prime Offer Rates” Tables. There is a table for fixed rates and a table for adjustable rates. A first lien is an HPML loan if it has an APR that is higher than the appropriate rate from the table based on the date the loan was locked plus 1.5%. FFIEC HPML Rate Spread Calculator and “Average Prime Offer Rates” tables.
Answered over 3 years ago