IMPLEMENTING THE NEW HOEPA RULES TO REGULATION Z
frequently asked Questions

 

By Gary Opper, Approved Financial Corporation, Weston, FL

954-384-4557 Fax 954-384-5483

 

He who asks a question is fool for five minutes; he who does not ask a question remains a fool forever.

-Chinese Proverb

 

Compliance with all the provisions of The Home Ownership Equity Protection Act (“HOEPA”) (“ACT”) has been required since October 1, 1995; however, HOEPA still  creates an enormous quantity of confusion.  Often, mortgage brokers ask me questions regarding HOEPA.  I have provided for you some “Frequently Asked Questions and Answers” regarding the HOEPA rules that are effective beginning October 1, 2009 and other dates.  I HOEPA this assists you. These questions and answers are not all inclusive.  They follow the statute starting with Subpart E, Section 226.32 in sequential order, focusing primarily on the rules.

 

What is the purpose of the Rules?

Federal Reserve Chairman Ben S. Bernanke states, "The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership. Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve.  Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers."   

According to former Federal Reserve Governor Randall S. Kroszner, “These changes have made for better rules that will go far in protecting consumers from unfair practices and restoring confidence in our mortgage system.”

In General, what is HOEPA about?

 

HOEPA is about four items.  First, the ACT provides a definition of a HOEPA loan and who must comply.  A mortgage is a HOEPA mortgage if one of two tests is failed.  Second, the ACT mandates additional disclosures for a HOEPA loan.  Third, the ACT prohibits certain mortgage terms and conditions and prohibits certain patterns and practices of making mortgages.  Fourth, the ACT provides penalties for noncompliance. 

 

What does HOEPA mean?

 

HOEPA means the Home Ownership Equity Protection Act, Subtitle “B” of the Reigle Community Development & Regulatory Improvement Act of 1994.  The ACT is a major change in the Federal Truth in Lending Act and Regulation “Z.”

 

Mortgages originated under this ACT are called HOEPA mortgages, Section 32 mortgages, Section 129 mortgages, High Cost mortgages or High Interest Rate mortgages.


So what are the big changes in the law?

 

The amendment creates three loans subsets.  Different rules apply depending on the loan type.  The three loan types are:

 

Prime Loans

Higher-priced loans

High Cost loans (HOEPA loans)

 

The law added new disclosures, restrictions and limitations for certain loans.

 

Are all residential loans HOEPA mortgages?

 

Only a loan on a principal residence can be a HOEPA loan.  A mortgage is a HOEPA loan if it fails a total points and fees test or an interest rate test.

 

Points and Fees Test A HOEPA mortgage is a mortgage that the total points and fees exceed the greater of 8% of the total loan amount or $583.00 for 2009 (the amount has adjusted annually).  The total loan amount excludes the total points and fees.  For example, if you have a $50,000 loan and the total points and fees are $3,800 then the calculation is $3,800/ ($50,000-$3,800).  This is equal to 8.23%.  Therefore, you would have a HOEPA loan.  Mathematically, if the total points and fees are less than 7.4074% of the total mortgage, then the total points and fees will be less than 8.00% of the total loan amount.  You probably should allow for a cushion in the total loan amount by having the total points and fees less than maximum, i.e. maybe 7.30% and/or having a dollar amount cushion of say maybe $25.00 or so.

 

Interest Rate Test A HOEPA mortgage is a loan that the annual percentage rate (APR) at consummation is greater than the comparable US Treasury security plus 8% for first mortgages. For second mortgages use 10% instead of 8%.  The comparable US Treasury security is determined on the 15th day of the month preceding the month in which the borrower’s application is received by the lender.  As a precaution, you should be slightly under the maximum APR. 

 

What’s included in points and fees?

 

A lot more than just points and fees.  The following are points and fees:

 
1.  All items required to be disclosed under Section 226(a) and Section 226.4(b), except interest or the time-price differential.
Section 226.4(a) and 226.4(b) are finance charges. 

2.  All compensation paid to mortgage brokers
3.  All items listed in Section 226.4(c)(7) (other than amounts held for future payment of taxes) unless the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor
4.  Premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-cancellation coverage (whether or not the debt-cancellation coverage is insurance under applicable law) that provides for cancellation of all or part of the consumer's liability in the event of the loss of life, health, or income or in the case of accident, written in connection with the credit transaction.

 

What the heck is Section 226.4 (c) (7)?

 

Generally, the Section 226 (c) (7) charges are reasonable and are paid to independent third parties without kickbacks to lenders, so this will not be a problem; however, the Section 226 (c)(7) charges are:


1.  Fees for title, survey and similar purposes
2.  Fees for preparing loan-related documents
3.  Notary and credit report fees
4.  Appraisal fees and inspection fees if the service is performed prior to closing including pest infestation and flood hazard determinations fees

 

What are the most points and fees that can be charged?

 

The ACT does not limit the points and fees that can be charged.  State mortgage brokerage laws determine the limitation.  For example in Florida, Florida Statutes 494.042 provides the maximum brokerage fee that can be charged by a mortgage broker.  On a mortgage loan exceeding $5,000, the maximum fee is $250 plus 10% of the entire mortgage loan.  The entire mortgage loan is the total amount loaned less the brokerage fee.

 

How is the APR determined for a fixed rate HOEPA loan?

 

The APR is determined exactly the same way it usually is.

 

How is the APR determined for a variable rate HOEPA loan?

 

Lenders must use the rules provided in the commentary to Section 226.17(c) (1) in calculating the APR on a variable-rate loan.  Briefly, the APR calculation should assume the rate in effect at the time of disclosure remains unchanged.  The commentary also addresses the APR for discount, premium and stepped-rate transactions (which must reflect composite annual percentage rates).

 

How do I know what the HOEPA interest rate is?

 

The interest rate test is based on whether the subject loan’s APR exceeds the yield on Treasury Securities by more than 8%. To determine the correct yield you must use a comparable period of maturity to the actual subject loans maturity date.   The comparable Treasury Securities date used is the 15th day of the month immediately preceding the month in which the borrower’s application was received by the lender.

 

The Treasury security’s interest rates are available in Federal Reserve Statistical Release H. 15 at http://www.federalreserve.gov/Releases/h15/.

           

Look in Statistical Release H. 15 for the interest rate that matches the term of the subject mortgage.  Add 8% to this interest rate.

 

When is the borrower’s application considered received by the lender?

 

An application is deemed received when it reaches the lender in any of the way applications are normally transmitted.  An application from a mortgage broker is considered received when the lender receives it and not when the mortgage broker receives it.

 

For example, a mortgage broker receives an application on September 24 and emails it to the lender on October 4.  The application is deemed received by the lender on October 4.

 

If the lender makes a counteroffer, the mortgage application is considered received when the lender receives the application and not when the lender makes the counteroffer.

 

What if the 15th day of the previous month is not a business day?

 

If the 15th day of the previous month is not a business day, the lender must use the yield of the business day immediately preceding the 15th.

 

What if my mortgage maturity is not exactly the same as the Treasury securities?

 

Treasury securities have the following maturities, 3-months, 6-months, and 1, 2, 3, 5, 7, 10, 20 and 30-year maturities.

 

When the subject mortgage term does not match a Treasury security term then pick the nearest year’s maturity.  If the subject mortgage year's maturity is exactly in the middle, use the US Treasury security with the lowest yield.

 

For example, Treasury securities have 7 year (2.57%) and 10 year (2.81%) maturities.  An eight-year mortgage would therefore, would use the 7 year Treasury security interest rate and a 9-year mortgage would use the Treasury security with a 10-year maturity.

 

An 8.5-year mortgage would use the Treasury security with a 7-year maturity since the 7-year maturity yield (2.57%) is lower than the 10-year security (2.81%).  The shorter-term maturity would generally have a lower interest rate; however, be careful. The yield spread can be inverted and the longer maturity can have a lower yield.  The 30-year maturity treasury security often has a lower yield than the 20-year maturity treasury security.

 

What is the highest interest rate that a lender can charge?

 

The ACT does not limit the interest rate that a lender may charge.  The lender is limited to the interest rates allowed by state law.

 

Can my investor avoid HOEPA if he purchases a HOEPA loan after closing?

 

No, anyone who purchases or is assigned a HOEPA mortgage is subject to all the claims and defenses that the borrower could assert against the original lender. 

 

What are the five additional disclosures that are required?

 

Besides all the other disclosures required in a regular mortgage transaction by the state and federal government, this ACT requires the following disclosures to the borrower:

 

  • Specific Disclosures
  • Annual Percentage Rate Disclosures
  • Regular payment; balloon payment Disclosure
  • Variable-rate Disclosure
  • Amount borrowed Disclosure

 

Specific Disclosures The Specific Disclosure states, "You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do no meet your obligations under the loan.”

 

Annual Percentage Rate Disclosures You must disclose the APR.

 

Regular Payment; Balloon Payment Disclosure    The disclosure includes the amount of the regular monthly (or other periodic) payment and the amount of any balloon payment. The regular payment disclosed under this paragraph shall be treated as accurate if it is based on an amount borrowed that is deemed accurate and is disclosed under Amount Borrowed Disclosure.

 
Variable-rate Disclosure For variable-rate transactions, the disclosure statement must include the interest rate and monthly payment may increase, and the amount of the single maximum monthly payment, based on the maximum interest rate that may be imposed during the mortgage term.

 
Amount Borrowed Disclosure For a refinancing, the disclosure must state the total amount the consumer will borrow, as reflected by the face amount of the note; and where the amount borrowed includes premiums or other charges for optional credit insurance or debt-cancellation coverage, that fact shall be stated, grouped together with the disclosure of the amount borrowed. The disclosure of the amount borrowed shall be treated as accurate if it is not more than $100 above or below the amount required to be disclosed.

 

What are the limitations that cannot be included in a HOEPA loan?

 

The limitations include:

 

  • Balloon Payment Limitation
  • Negative Amortization Limitation
  • Advance Payments Limitation
  • Increased Interest Rate Limitation
  • Rebates Limitation
  • Prepayment Penalties Limitation
  • Due-on-Demand Clause Limitation

 

Can a HOEPA loan have a balloon?

 

Yes.  A balloon is acceptable if the term of the mortgage is 5 years or more.  If the mortgage has a term of less than 5 years then a balloon is not acceptable.  A balloon is when the regular payments do not fully pay off the principal balance and a lump sum payment of more than twice the amount of the regular payments is required

 

What if my HOEPA loan is less than 5 years?

 

A HOEPA loan with a term of less than 5 years must be fully amortized through “regular periodic payments”.  A payment is a “regular periodic payment” if it is not more than twice the amount of the other payments.

 

What about a “bridge” loan?

 

If the loan matures in less than one year and the loan is a “bridge” loan in connection with the acquisition or construction of a consumer’s principal dwelling, then a balloon is acceptable.

 

Can a HOEPA loan have negative amortization?

 

Simply put, no.

 

Can I collect a six-month interest reserve in advance?

 

No, a lender may not collect in advance more than two periodic payments from the borrower’s proceeds.

 

Can a HOEPA loan have a default interest rate?

 

No, the default interest rate cannot be higher than the interest rate before a default.

 

How are rebates handled?

 

A refund shall not be calculated by a method less favorable than the actuarial method (as defined by section 933(d) of the Housing and Community Development Act of 1992, 15 U.S.C. 1615(d)), for rebates of interest arising from a loan acceleration due to default.

 

What are the prohibited acts and practices under the ACT?

 

The following only apply in certain cases. The act requires the following if applicable.

 

Home Improvement Contracts Any check to a home improvement contractor must be payable to the consumer or jointly to the consumer and the contractor. Alternatively, this can be through an escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor and the contractor.

 

Notice to Assignee If the mortgage is sold or assigned, a notice must be furnished to the buyer.

 

Refinancings within one-year period  During the first year of the HOEPA loan, the creditor shall not refinance any HOEPA loan to the same borrower into another HOEPA loan, unless the refinancing is in the borrower's interest. A creditor (or assignee) is prohibited from engaging in acts or practices to evade this provision, including a pattern or practice of arranging for the refinancing of its own loans by affiliated or unaffiliated creditors, or modifying a loan agreement (whether or not the existing loan is satisfied and replaced by the new loan) and charging a fee.

 

Repayment ability A lender can not base a HOEPA loan on the value of the consumer's collateral without regard to the consumer's repayment ability as of consummation, including the consumer's current and reasonably expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations. The repayment ability must be verified.
 

Under the Act, what does a creditor need to do to have a presumption of compliance regarding the repayment ability?

 

A creditor is presumed to have complied with the repayment ability with respect to a transaction if the creditor:

 

  •   Verifies the consumer's repayment ability

 

  •  Determines the consumer's repayment ability using the largest payment of principal and interest scheduled in the first seven years following consummation and taking into account current obligations and mortgage-related obligations

 

  •  Assesses the consumer's repayment ability taking into account at least one of the following: The ratio of total debt obligations to income, or the income the consumer will have after paying debt obligations

 

Notwithstanding the previous paragraph, no presumption of compliance is available for a transaction for which:

 

  • The regular periodic payments for the first seven years would cause the principal balance to increase

 

  • The term of the loan is less than seven years and the regular periodic payments when aggregated do not fully amortize the outstanding principal balance.
         

This provision does not apply to temporary or "bridge" loans with terms of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months.

 

What are the mortgage-related obligations in repayment ability?


Mortgage-related obligations are expected property taxes, premiums for mortgage-related insurance required by the creditor.

Can a lender charge a prepayment penalty?

 

Yes, but a lender must comply with five requirements.

 

First, the prepayment penalty is not prohibited under any other law.

 

Second, the prepayment penalty can only apply for the first 2 years of the mortgage.

 

Third, the payment of the prepayment penalty cannot come from refinancing of the mortgage from the lender or the lender’s affiliate.

 

Fourth,  at closing, the consumer's total monthly debt payments (including amounts owed under the mortgage) do not exceed 50 percent of the consumer's monthly gross income, as verified in accordance with Section 226.34(a)(4)(ii), verification of repayment ability.

 

Fifth, the amount of the periodic payment of principal and/or interest may not change during the four-year period following closing.

 

What is the Section 226.34(a) (4) (ii) regarding verification of repayment ability?

 

Under this paragraph, a creditor must verify the consumer's repayment ability as follows:


1.  A creditor must verify amounts of income or assets that it relies on to determine repayment ability, including expected income or assets, by the consumer's Internal Revenue Service Form W-2, tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of the consumer's income or assets.


2.  Notwithstanding the above paragraph, a creditor has not violated the verification of repayment ability if the amounts of income and assets that the creditor relied upon in determining repayment ability are not materially greater than the amounts of the consumer's income or assets that the creditor could have verified pursuant to the paragraph above at the time the loan was consummated.


 3. A creditor must verify the consumer's current obligations.

 

 

What is the due-on-demand clause limitation?

 

A HOEPA loan can contain a demand feature that permits the creditor to terminate the loan in advance of the original maturity date and to demand repayment of the entire outstanding balance.  A creditor can demand repayment in the following three events:

 
1.   There is fraud or material misrepresentation by the consumer in connection with the loan

2.   The borrower defaults on the mortgage

3.   There is any action or inaction by the consumer that adversely affects the creditor's security for the loan, or any right of the creditor in such security.

 

What are “higher-priced mortgage loans”?

 

Section 226.34 creates a subset of consumer residential mortgage loans referred to as “high-priced mortgage loans”.  A higher-priced mortgage loan is a mortgage on a consumer's principal dwelling with an annual percentage rate that exceeds the average price offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for loans secured by a first lien on a dwelling, or by 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling. Loans that do not exceed the above interest rates are “prime loans”.  Higher-priced loans can include purchase money mortgages.

 

What is “Average prime offer rate?”

 

“Average prime offer rate” means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics. The Federal Reserve Board publishes average prime offer rates for a broad range of types of transactions in a table updated at least weekly as well as the methodology the Board uses to derive these rates.

 

What does “higher-priced loan” not include?

 

Notwithstanding the above answer, the term "higher-priced mortgage loan" does not include the following transactions:

 

  • The initial construction of a dwelling
  • A temporary or "bridge" loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months
  • A reverse-mortgage transaction subject to Section 226.33
  • A home equity line of credit subject to Section 226.5b

What are rules for higher-priced mortgage loans? 

 

Higher-priced mortgage loans are subject to the following restrictions:

 

  • Repayment ability
  • Prepayment penalties
  • Escrows

 

What is the rule for repayment ability for higher-priced loans?


A creditor shall not extend credit based on the value of the consumer's collateral without regard to the consumer's repayment ability as of consummation as provided in the “
What are the prohibited acts and practices under the ACT?” question above.

 

What is the rule for prepayment penalties for higher-priced loans?


A loan may not include a prepayment penalty unless:

 
The “
Can a lender charge a prepayment penalty?” is satisfied.  Under the terms of the loan, the penalty will not apply after the two-year period following consummation; the penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor; and the amount of the periodic payment of principal or interest or both may not change during the fourth-year period following consummation.

 

What are the new laws for escrow accounts for higher-priced loans?


Except as provided in paragraph below, a creditor may not extend a loan secured by a first lien on a principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss.


Escrow accounts need not be established for loans secured by shares in a cooperative and insurance premiums need not be included in escrow accounts for loans secured by condominium units, where the condominium association has an obligation to the condominium unit owners to maintain a master policy insuring condominium units.

 

A creditor or servicer may permit a consumer to cancel the escrow account only in response to a consumer's dated written request to cancel the escrow account that is received no earlier than 365 days after consummation.

 

When are the higher-priced loans effective?

 

The rule is effective on October 1, 2009.  The repayment ability, prepayment penalty and the escrow rules are effective October 1, 2010.  For new construction the escrow rules are effective on April 1, 2010.

 

What loans are exempt from the Act?

 

The following is a partial list of exempt loans:

 

  • Commercial loans
  • Investment Property
  • Non-consumer owned property
  • Non-owner Occupied Resident loans
  • Non-real estate loans
  • Certain land loans
  • Second homes.

 

Some of these laws and regulations are new, when are they effective?

 

Most of these are effective now!  Some effective dates are marked in the text.   Consult an appropriate professional to discuss the actual effective date of these laws and rules.

 

 

Where can I read more about the actual ACT and learn more about it?

 

The source material follows:

 

·        The Truth In Lending Act (TILA; 15 U.S.C. 1601 et seq.)

·        The Federal Reserve Board’s Regulation Z (12 CFR part 226)

·        The Federal Reserve Board’s Official Staff Commentary [12 CFR part 226 (Supp.  I)]

 

OK, so now I know everything I need to know about HOEPA mortgages?

 

No!  The Federal Reserve Board’s staff and courts continues to interpret the law, so much is still unresolved.  This is only a summary of parts of the ACT.  It is not a substitute for actually reading the ACT and discussing it with competent professionals. 

 

The answers are based on the ACT but should not be relied upon without a review of the statute, regulations and the Board of Governors’ commentary.  This information is not to be construed as legal advice.  For legal advice, please consult a professional practicing real estate mortgage attorney.

 

So what did you leave out?

 

I have not discussed open-end home equity plans, advertising and abuses.  Again, this is an overview.  Please discuss the new law with your legal counsel for how the law affects your business. There are also provisions for regarding appraisal coercion.

 

This article was written to provide accurate and authoritative information in regard to the subject matter covered. It is printed with the understanding that the author is not offering any legal, accounting or professional service and the information stated should not be applied to any specific factual instance. If you are unsure about a particular situation, you should consult an attorney.

 

Gary Opper is the managing member of Levie-Opper, LLC, a mortgage fraud litigation support firm. He has a CPA and a CFP license. Opper is past President of the FAMB - Miami Chapter and the FICPA - Gold Coast Chapter.  Opper is a member of the NAMB, FAMB, AICPA and the FICPA. Mr. Opper has been the NAMB’s Writer of the Year and Featured Writer of the Year. Mr. Opper was the FAMB’s Broker of the Year.   He has been president of Approved Financial Corporation,  mortgage lender since 1984.  Mr. Opper is available to speak to your group.  Please contact him to arrange a speech for your event.  He may be reached at (954) 384-4557, fax: (954) 384-5483, or e‑mail: Gary@Levie-Opper.com.

 

© Gary Opper.  All Rights Reserved.


 

HOEPA Mortgage Loan Calculation

 

 

Loan Name _________________________

 

 

Points & Fees Test

 

Mortgage Loan Amount (A)                                                     $_____________

 

/          Mortgage Lender Point(s)               $______________

/          Mortgage Broker Point(s)               $______________

/          Mortgage Lender Fees                   $______________

/          Mortgage Broker Fees                   $______________

/          Flood Cert.                                    $______________

/          Tax Service Fee                             $______________

/          Notary Fee or Courtesy Closing     $______________

/          Assignment of Mortgage                 $______________

/          Courier Fees                                  $______________

/          Other Fees (1)                                $______________

 

Total Points & Fees (B)                                                                        $(_______________)

 

Total HOEPA Loan Amount (A-B) (C)                                                $_________________

 

8% of Total HOEPA Loan Amount {.08 x the above(C)} (D)   $_________________

           

                       

Interest Rate Test

 

Date Mortgage Loan Application Received                                           __________________

 

15th Day of the Previous Month (2)                                                      __________________

 

Length of Mortgage in Years                                                                 ___________ year(s)

 

Length of Comparable U.S. Treasury Security (3)                                 ___________ year(s)

 

Comparable U. S. Treasury Security Interest rate for

Loan Term for 15th Day of the Previous Month (E)                               ________________%

 

Comparable U.S. Treasury Security (E+ 8/10%) (F)(4)                        ________________%

 

Actual APR (G)                                                                                    ________________%

 

 

I. Points & Fees Test (B) $____________________    < (D) $ _____________________

                                             (Total Points & Fees)                     (8% of HOEPA loan)

 

II. Interest Rate Test            (G) ____________________% < (F) ____________________%

                                                (Actual APR)                                             (Comparable U.S. Treasury +8/10%)

 

 

If I. and II are both true than the mortgage is not a HOEPA loan.  If I. or II, or I and II, are false than the mortgage is a HOEPA loan.

 

(1)  OTHER FEES are all items included in the finance charge, except interest or time-price differential and each of the charges listed in Section 226.4 (c)(7), unless the charge is reasonable, the lender receives no compensation and the charge is to an independent third party.  Section 226.4(c)(7) charges are: title examination fees, documentation preparation fees, notarization fees, appraisal fees, credit reports, pest infestation inspection fees and flood zone determination fees.

 

(2) If the 15th day of the previous month is not a business day, the lender must use the yield of the business day immediately preceding the 15th.

 

(3) Treasury securities have the following maturities, 3-months, 6-months, and 1, 2, 3, 5, 7, 10, 20, and 30-year maturities.  When the subject mortgage term does not match a Treasury security term then pick the nearest year’s maturity.  If the subject mortgage year's maturity is exactly in the middle, use the US Treasury security with the lowest yield.

 

For example, Treasury securities have 7 year (2.57%) and 10 year (2.81%) maturities. An eight-year mortgage would therefore, would use the 7 year Treasury security interest rate and a 9-year mortgage would use the Treasury security with a 10-year maturity.

 

An 8.5-year mortgage would use the Treasury security with a 7-year maturity since the 7-year maturity yield (2.57%) is lower than the 10-year security (2.81%). The shorter-term maturity would generally have a lower interest rate.  However, be careful, the yield spread can be inverted and the longer maturity can have a lower yield.   The 30-year maturity treasury security often has a lower yield than the 20-year maturity treasury security.

  

(4) For first mortgages use 8% for subordinate mortgages use 10%.

 

Form by Gary Opper, Approved Financial Corporation, Weston, FL

954-384-4557 Fax 954-384-5483

 

 

 

 

 

© Gary Opper.  All Rights Reserved.