High-Cost vs. Higher-Priced
New CFPB rules change the definitions and coverage of two types of mortgages.
In the Consumer Financial Protection Bureau’s (CFPB) stack of final mortgage rules you’ll frequently see the terms “high-cost” and “higher-priced” mortgages. The rules make numerous changes to the definitions and the coverage within these categories of mortgages.
Confused? You’re not alone. I’ll review the current scope of both types of mortgages as well as what will change when the CFPB’s rules go into effect.
These different categories of mortgages operate under two separate sections of Regulation Z. You’ll find high-cost mortgages in Reg Z, section 1026.32—and they’re often known as “Section 32” mortgages. Higher-priced mortgages are in Reg Z, section 1026.35.
Mortgages that fall into the high-cost or higher-priced category have certain restrictions and requirements, so it’s important to understand what they are.
The definition of a high-cost mortgage currently covers a consumer credit transaction secured by a consumer’s principal dwelling in which either:
Effective Jan. 10, 2014, a high-cost mortgage will cover a consumer credit transaction secured by a consumer’s principal dwelling in which:
Currently, high-cost mortgages exclude open-end loans. But as of January 2014, high-cost mortgages will include open-end loans secured by a consumer’s principal dwelling.
A higher-priced mortgage is a consumer credit transaction secured by the consumer’s principal dwelling with an APR that exceeds the APOR by 1.5 or more percentage points for a first lien, or 3.5 or more percentage points for a subordinate lien.
The new rules slightly alter the definition of a higher-priced mortgage to be a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an APR that exceeds the APOR by:
But the more significant changes for higher-priced mortgages resulting from the Dodd-Frank Act are the various exclusions. These exclusions for the higher-priced escrow provisions differ from the appraisal provisions, so it’s important to look beyond the definition to determine whether the higher-priced provisions are applicable.
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