What Is High Cost Mortgage Defined As?

High Cost Mortgage

Gustan Cho Associates

High Cost Mortgage is part of mortgage regulations and mortgage lenders who violate High Cost Mortgage rules can get fined and sometimes even get their mortgage licenses revoked. High Cost Mortgage rules and regulations were implemented and launched by mortgage regulators to protect the consumers, however, it turns out that it often does not protect the consumer and ends up hurting consumers, especially mortgage loan borrowers with smaller mortgage loan amounts. Once again, there was a good intent when creating this new rule. Unfortunately, as is typically the case, the legislators out to help those they perceive in society to need the most protection, have once again hurt this segment of the population the most. Those FHA borrower how typically are purchasing less expensive homes with smaller loan amounts, are being victimized by this High Cost Mortgage  regulation.

FHA Mortgage Insurance Premium

What happens is FHA Mortgage Insurance Premium and other fees and costs associated with an FHA mortgage loan that are calculated in the Annual Percentage Rate or APR effect smaller balanced mortgage loans much more drastically than larger balanced FHA insured mortgage loans. This makes it harder for a $68,000 FHA purchase to pass a lender’s high cost test than a $220,000 purchase. It makes the smaller FHA loan not only less cost efficient, but effectively economically impossible for a mortgage company to originate and keep the lights on when there is the same amount of time effort, and labor cost associated with a $220,000 FHA mortgage loan.

FHA Upfront Mortgage Insurance Premium

The FHA has an upfront Mortgage Insurance cost of 1.75% of the loan amount. Unfortunately, this is calculated in to the annual percentage rate when it should be exempt. This would greatly alleviate the problem. The title insurance closing fee is not typically a cost controlled by the buyer. In approximately 20 states the seller’s attorney issues the title insurance policy. The closing fee averages about $1,000 in the Chicago area, $1000 in the New Jersey area, and $1200 in the Boston area. In non-attorney title states this fee tends to be lower; but once again, it should not be included in the  mortgage loan APR calculation because for the most part it is not under the control of the lender or the borrower, and can’t be shopped for.

How Does High Cost Mortgage Work?

In a “nut shell” here is how it works: This regulation was established by Regulation Z, and went into effect October 1, 2009. It is based on the Average Prime Offering Rate on the date the interest rate is locked. A mortgage Annual Percentage Rate or APR cannot exceed 1.5% of this index. The Average Prime Offering Rate is published weekly by the Federal Financial Institutions Council (FFIEC) and is available at: http://www.ffiec.gov/ratespread/aportables.htm

The High Cost Mortgage thing, or do dad, or whatever we should call it could be a good policy with just a couple really easy changes. However, the fact these modification to the law that causes discrimination and redlining is so easy to fix, leads me to believe nothing will be done about it. For the most part, most of the big lenders and Banks like $200,000 loan amounts better than $50,000 loan amounts.

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