Preparing for the 2014 HOEPA Regs

We've spent the last couple of months putting the finishing touches on revisions to the Carleton "HOEPA" module.  Like any software update that deals with regulations, the bulk of the changes were fairly straight-forward.  It is the nuances "around the edges" that always makes life a bit more interesting.

For a company like Carleton that specializes in the consumer credit math, the big ticket items were the structural changes to the "APR Trigger" and "Points and Fee Trigger".  Those two items  represent the anchors of our role in the HOEPA determination process.

The  APR Trigger now features lower percentages representing the threshold.  The 8%/10% values currently in place will be replaced by 6.5%/8.5%.  The other major change is that the rate used for evaluation will become the Average Prime Offer Rate, as published on the FFIEC website. 

Those were obvious material revisions to the current regulation.  A more subtle change is that the "APR" compared to the APOR rates is no longer the computed  and disclosed Truth in Lending Act APR for the transaction.  Instead, the interest rate is now used for comparison.

Yet the label is still referred to as "APR."  We fight the battle constantly to use precise and accurate labels to enhance clear communication.  Then, the regulation itself promotes an "APR that is not an APR".  Ya gotta love administrators.

It appears that one of the goals of the APR Trigger restructuring is to bring the HOEPA threshold process more in line with similar ones for the HMDA rate spread and HPML determinations.

One of the nuances effected, more less by implication, is that by adopting the APOR standard, the determination of a "comparable transaction" changes for adjustable rate loans.  The comparable transaction is no longer based on the life of the loan.

The Points and Fees Trigger has been revised and now has a tiered rate structure with the percentage being 5% for loans under $20,000 and 8% for loans of $20,000 or  more.  There is also a new "floor" amount of $1,000 associated with the 8% fee percentage.

It looks like January 2014 will be a busy and interesting month as a number of new regulations go into effect.