Rate Spread Calculator
RATA Associates has developed the RATA Rate Spread Calculator within the RATA Comply™ Suite to assist HMDA reporting institutions with the new Regulation C requirements for reporting Rate Spread data effective for 2004 HMDA data and forward. The Rate Spread Calculator generates the spread between the Annual Percentage Rate (APR) and either the "Treasury Securities of Comparable Maturity" or the "Average Prime Offer Rates" as applicable under Regulation C. Comply takes into account the action taken, application date, rate lock-in date, APR, fixed portion of the loan term, lien status and amortization type when calculating the rate spread. Rate Spread is NOT simply the APR on the loan application.
A link to the government Rate Spread Calculator and Batch Rate Spread Calculator is also available to allow institutions to calculate the rate spread on multiple Loan Application Registers (LARs).
NOTE: Do not use the rate spread calculator to calculate the HOEPA status; they are two different fields which require two different calculations.
A rate spread equal to 'NA' is a result of one or more data parameters that do not meet the specifications for reporting the rate spread. Data parameters that will result in a rate spread equal to 'NA' are listed below.
- The Rate Spread is reported on originated loans only, therefore, any action on the application or loan, other than an origination (Action Taken = 1) will result in a rate spread equal to 'NA'.
- If the loan is not subject to Regulation Z, or is a home improvement loan that is not dwelling-secured, or is a loan that you purchased, enter 'NA'.
- If the lien status equals 1 and the rate spread calculated is less than 3 percentage points, the result will be a rate spread equal to 'NA'. If the lien status equals 2 and the rate spread calculated is less than 5 percentage points, the result will be a rate spread equal to 'NA'.
- If the lien status equals 3, not secured by a lien, the result will be a rate spread equal to 'NA'. * The lien status code of 4 is used to identify purchased loans on the LAR reporting form. The rate spread is NOT calculated for purchased loans and will therefore result in a rate spread equal to 'NA'.
- The rate spread is not calculated on Home Equity Lines of Credit (HELOCs). If the institution chooses to report HELOCs, the rate spread should be equal to 'NA'.
Rate Spread Calculator
- Rate Spread versus HOEPA, what is the difference?
- Rate Spread is a calculated field and is NOT simply the APR on the loan application. Rate Spread and HOEPA are two separate fields on the HMDA LAR with two separate calculations. The rate spread web site should be used only for calculating the rate spread.
- HOEPA covers closed-end loans secured by the borrower's principal residence, other than home purchase loans, WITH RATES OR FEES ABOVE CERTAIN THRESHOLDS OR "TRIGGERS". HOEPA has an APR trigger and a points and fees trigger. For HOEPA calculation information, refer to the following link (http://www.stlouisfed.org/hmdaregcamendments/pages/hoepa_status.html). This page discusses the HOEPA calculation requirements to determine if the originated or purchased closed-end loans secured by the borrower's principal residence are HOEPA loans.
- When I submitted my data for calculation I received the message "Invalid Parameters", what does this mean?
- Data elements entered into the Lock-In Date, APR, Term and/or Lien Status field do not meet the requirements for that field. If this is the case, a red text error message will appear to the right of the field indicating the error.
- The update to the Treasury Securities of Comparable Maturity Under Regulation C table (Treasury securities table) is performed within 24 hours of the Federal Reserve posting the relevant H.15 statistical release. Posting of the statistical release by the Federal Reserve for the 15th of the month typically occurs in the evening on the next business day following the 15th of the month. Due to the delay in the release of the statistical data necessary to update the Treasury securities table, the rate spread cannot be calculated until the table has been updated. This delay will occur every month and should be considered when attempting to calculate the rate spread between the 15th and 17th of the month.
- What term should be used when the amortization period is longer then the term?
- If the amortization period of a loan is longer than the term of the loan – i.e., because the loan has a balloon feature- the lender should use the term when selecting the comparable Treasury yield. For example, in the case of a five-year loan that has a balloon payment because the payments are amortized over 30 years, the term of five years must be used.
- In an Adjustable Rate Mortgage (ARM) situation, it is a long-term loan that happens to have a feature whereby the rate adjusts at a much earlier time -- for example, five years. The lender should use the term when selecting the comparable Treasury yield. The term represents the time to maturity on a loan product. For example, a 5/30 ARM that is amortized over 30 years must use 30 as the loan term, because the time to maturity in this example is 30 years.
- Do I need to manually locate the yield on the Treasury securities table to use the single or batch rate spread calculator?
- No. When utilizing the single or batch rate spread calculator, the user does not need to manually determine the applicable yield. The single and batch rate spread calculator utilize the lock-in date, APR, term, and lien status entered by the user to determine the applicable yield for the rate spread calculation.
- An institution will use the download and save feature of the Treasury securities table when utilizing the RATA Comply HMDA Software,. After successfully downloading the Treasury securities table, the institution can Import the table into the Comply software for rate spread calculations. The Treasury securities table must be downloaded each month to ensure the applicable yields are being utilized for the rate spread calculation.
For more information on the RATA Associates or The RATA Comply Suite, please contact us.
Currently, HMDA reporters are not required to report information on loan pricing. The original proposal to amend Regulation C would have required lenders to report the annual percentage rate (APR) on home purchase and home improvement loans that are covered by the Truth in Lending Act and its implementing Regulation Z. Based on the comments received, the Board adopted a rate spread approach, which represents a modified approach regarding the rate disclosure and coverage.
Lenders will now be required to report the spread between the APR on a loan at consummation and the yield on Treasury securities of comparable maturity (the “rate spread”) for loan originations in which the rate spread meets or exceeds certain thresholds specified by the Federal Reserve Board in Regulation C.
This approach was adopted because it will adjust pricing data based on changes in market conditions over time and will focus on higher cost loans. It will also limit reporting burden because fewer loans will be subject to the reporting requirements.
The following chart depicts when the rate spread must be reported:
|Reporting Rate Spread Report Spread
|| Do Not Report Spread
- Originations of home purchase loans
- Originations of dwelling-secured home improvement loans
- Originations of refinanced loans
- Applications that are incomplete, withdrawn, denied or approved but not accepted
- Purchased loans
- Unsecured home improvement loans
Reason for Change
Obtaining loan pricing data will help regulatory agencies better understand the mortgage market. Pricing information may also help identify practices that raise potential fair-lending concerns that warrant further investigation. The Board particularly believes this information will help identify subprime loans, which have different characteristics than conventional loans. Since the mid-1990s, the subprime mortgage market has grown substantially, providing credit access to borrowers with flawed credit histories and to other borrowers who are not served by prime lenders. Along with the growth in the subprime market, there have come increased variations in loan pricing and increased reports of “predatory lending,” which covers a variety of lending practices. Although there is no generally accepted definition of predatory lending practices, the term is used to refer to abusive lending practices involving fraud, deception or unfairness.
The Board also amended Regulation C to require that the Home Ownership and Equity Protection Act (HOEPA) status of a loan to be reported and disclosed. While HOEPA status can be obtained through bank examinations, nondepository lenders are not subject to regular examinations, although they made a substantial percent of the dollar volume of loan originations reported under HMDA for the year 2000. In addition, even for depository lenders, the Board believes collecting HOEPA status on the HMDA-LAR is a more efficient way to obtain the data.
HOEPA, as implemented by Regulation Z, includes both an annual percentage rate trigger and a points and fees trigger. The fees trigger may cause a loan to fall under HOEPA even if the loan's rate spread would not be reportable. If the loan exceeds either the APR or points and fees triggers, its HOEPA status must be reported on the HMDA-LAR.
Another difference in the HOEPA test and the rate spread test is the source of information used to determine the Treasury yields used in both HOEPA and rate spread calculations. As currently required by Regulation Z, HOEPA will continue to require lenders to use the H.15 statistical release table as the source of Treasury yields, while the rate spread approach uses a new table developed by the Board titled “Treasury Securities of Comparable Maturity Under Regulation C.”