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Pricing Data

Rate Spread

The amended regulation requires that lenders report the spread between the annual percentage rate (APR) and the applicable Treasury yield for originated loans where the spread equals or exceeds the following thresholds:

Rate Spread Thresholds

Lien Status

Rate Thresholds

For first-lien loans:

3 percentage points or more over the comparable Treasury security yield

For subordinate-lien loans:

5 percentage points or more over the comparable Treasury security yield

The thresholds are intended to ensure, to the extent possible, that pricing data for higher-cost loans are collected and disclosed. At the same time, the thresholds are meant to exclude prime loans from the requirements.

CALCULATING THE RATE SPREAD

The methodology for calculation of the rate spread is outlined in Regulation C. This methodology requires the use of a new yield table titled “Treasury Securities of Comparable Maturity under Regulation C” and is located on the FFIEC’s web site.

To calculate the spread, a lender must use the rate lock-in date on the loan to first determine the applicable Treasury yield date. Determining the applicable yield date is necessary for identifying the Treasury yield to be used in the calculation.

After determining the appropriate Treasury yield date, a lender must identify the Treasury yield of a comparable maturity from the “Treasury Securities of Comparable Maturity under Regulation C” table. This Treasury yield will then be compared to the APR at consummation to calculate the rate spread. If the difference between the APR and the Treasury yield is equal to or greater than 3 percentage points for first liens or 5 percentage points for subordinate liens, the lender will report the amount of the rate spread. If the difference is less than the applicable threshold, “NA” will be reported in the rate spread field.

The following chart provides examples of how to determine the Treasury yield date:

Determining the Applicable Treasury Yield Date

Date When the Rate Was Set

Applicable Treasury Yield Date

March 14, 2004

Feb. 15, 2004

March 15, 2004

March 15, 2004

March 31, 2004

March 15, 2004

May 13, 2004

April 15, 2004

 

For purposes of determining the rate spread for adjustable-rate mortgage loans, the applicable Treasury yield date for determining the rate spread is different from the 45-day “look-back” period normally used for setting the periodic interest rate adjustments. For interest rate adjustments, lenders must always use the “look-back” period and interest rate index specified in the loan note.

To aid lenders in calculating and reporting rate spreads, the Treasury yields to be used will be posted on the FFIEC’s web site and updated monthly. Lenders must use only the yields published on the FFIEC web site titled “Treasury Securities of Comparable Maturity under Regulation C”. The Federal Reserve Board’s statistical release H.15 table Selected Interest Rates cannot be used for the HMDA rate-spread calculation, although it will continue to be used for HOEPA purposes. In short, the Treasury yields posted on the FFIEC web site will be the sole source of Treasury yield data for calculating rate spreads.

REPORTING RATE SPREAD ON THE HMDA-LAR

HMDA reporters will input the following information to report the rate spread on the HMDA-LAR:

See the “rate spread” field on the LAR.
  • Enter “N/A” (not applicable) for the following:
    • applications or loans that are not subject to Regulation Z (12 CFR 226).
    • unsecured home improvement loans.
    • loans that the lender purchased.
    • applications that do not result in an origination.
    • loans where the difference between the APR and the Treasury yield is less than 3 percentage points for first-lien loans or 5 percentage points for subordinate-lien loans.
  • For loans where the rate spread field is applicable:
    • Enter the rate spread on the HMDA-LAR for covered loans where the difference between the APR at consummation and the applicable Treasury yield is equal to or greater than the applicable threshold. Enter the rate spread to two decimal places and use a leading zero. For example: If the rate spread is determined to be 3.29 percentage points, enter 03.29 on the LAR. If the percentage is greater than two decimals, round the figure or truncate the digits beyond the two decimal places.

THE RATE SPREAD CALCULATOR

To reduce regulatory burden, the FFIEC has developed a Rate Spread Calculator (RSC) to aid lenders in calculating and reporting rate spreads. Lenders can access the calculator on the FFIEC web site. Lenders can also download the “Treasury Securities of Comparable Maturity under Regulation C” table each month to be used with either in-house or third party systems. Remember, the FFIEC is the sole source of the Treasury yield table. The table is already integrated into the web site calculator but can be used with other systems. Lenders enter pertinent information, and results of the calculation will be provided for review. The web site will allow lenders to perform calculations one transaction at a time or in batches of 10 loans. Version 3.0 of the FFIEC’s HMDA Data Entry Software will introduce the rate spread batch utility that permits lenders to import a file for batch processing. Look for the software to be available in December 2003.

When using the FFIEC’s calculator, the lender will be prompted to enter four data elements, three of which are not required to be reported under Regulation C (APR, rate lock-in date, loan term). While not reportable, these three data elements are essential to calculating the rate spread. The fourth data element, lien status, is a new reportable field. The four data elements follow:

Lock-In
Date

The “lock-in date” is the date on which the interest rate is set. This date determines the security yield that will be used to calculate the rate spread. For example, the lock-in date will be the date that a written or oral lock-in agreement between the lender and the borrower is executed. In cases where the rate is re-set because of a float-down option or the agreement expires, the lock-in date is the date on which the rate is re-set for the final time before closing. If no lock-in agreement is executed, the relevant date is the date on which the lender sets the rate for the final time before closing.

Loan
Term

“Loan term” is the time period between consummation of the transaction and the maturity date. It may not always correspond to the amortization period of the loan. For example, a five-year balloon loan may be amortized over 30 years, but the loan term is five years. Use only whole numbers for the loan term. For ARMs, use the loan term, not the amortization period.

Disclosed APR

The “Disclosed APR” is the appropriate figure to use in calculating the rate spread and is the APR disclosed on the final Truth in Lending disclosure provided to the borrower.

Lien
Status

“Lien status” refers to whether the loan is secured by a first lien, secured by a subordinate lien or unsecured. For purposes of calculating the rate spread, only secured transactions are covered.

 

Certain data elements used in calculating the rate spread (APR, rate lock-in date, loan term) should not be reported to your regulator. Data used in calculating rate spread with an FFIEC utility, web site or software is not stored in an FFIEC database.

The following examples illustrate the process for calculating the rate spread and reference the table “Treasury Securities of Comparable Maturity under Regulation C” to calculate the spread. This table can be found at http://www.ffiec.gov/ratespread and should be viewed when reading the first two examples. Note that the Treasury yield dates and Treasury yields used in the examples are for hypothetical purposes and should not be relied upon as actual security yields in effect on a specific date.

EXAMPLE ONE: PROCESS FOR CALCULATING THE RATE SPREAD

FACTS: Sue Wade applies for a $175,000 loan with NorthCo National Bank to purchase a home. She executes a rate lock agreement on March 10 with her lender for 7.0 percent for a 15-year loan. She qualifies for the loan, and NorthCo originates the loan on March 30. The mortgage is in a first-lien position. The corresponding APR is 7.35 percent.

QUESTION

What is the process for calculating the rate spread and how should the spread be reported on the lender’s HMDA-LAR?

ANSWER

1. Determine the Treasury yield date.

In order to determine the appropriate yield on the “Treasury Securities of Comparable Maturity under Regulation C” table to reference, identify the lock-in date. In this case, the lock-in date is March 10.

Locate the applicable Treasury yield date in the left-hand column of the table, which is the 15th of the month before the date the rate was set for the final time. In this example, the applicable Treasury yield date on the “Treasury Securities of Comparable Maturity under Regulation C” table will be Feb. 15, as posted on the FFIEC HMDA web site.

2. Determine the Treasury yield corresponding to the loan term.

To find the relevant Treasury yield, identify the applicable Treasury yield date in the left-hand column of the table and travel across the row until the yield corresponding to the term of the loan has been reached. Assume that yield is 4.25 percent in this example.

3. Determine the spread between the relevant Treasury yield and the disclosed APR.

Compare the relevant Treasury yield to the disclosed APR and determine the difference or spread. In this example, compare the Treasury yield of 4.25 percent with the disclosed APR of 7.35 percent to determine the difference. This difference is 3.10 percentage points.

4. Determine the lien status.

Finally, the rate spread must be considered in light of the lien status. This loan is in the first-lien position. The rate spread of 3.10 percentage points is required to be reported on the HMDA-LAR because it exceeds the threshold for first-lien loans (3 percentage points).

In the above example, we observed the process for calculating the rate spread and how a lender would calculate the spread and report a transaction that occurred prior to the 15th of the current month. The following series of examples outlines the process for loans involving lock-in dates on or after the 15th of the current month. In addition, other examples are included to reinforce the rate spread calculations and how the transactions should be reported. Note again that the Treasury yields used in the examples are for hypothetical purposes and should not be relied upon as actual security yields in effect on a specific date.

EXAMPLE TWO: LOCK-IN DATE ON THE 15th OF THE CURRENT MONTH

FACTS: Harry and Sally Jones apply for a $250,000 loan to purchase a new home. NorthStar State Bank quotes a rate of 5.25 percent for a 15-year loan. The Joneses agree to the terms and execute a rate lock agreement on April 15. The Joneses qualify for the loan, and it is originated on May 5. The mortgage is in a first-lien position. The corresponding APR is 5.75 percent.

QUESTION

What is the rate spread and how should it be reported on the lender’s HMDA-LAR?

ANSWER

1. Determine the Treasury yield date.

In order to determine the appropriate yield on the “Treasury Securities of Comparable Maturity under Regulation C” table to reference, the lock-in date must be identified (April 15). For the lock-in date of April 15, the applicable Treasury yield date is located in the left-hand column of the table, which is the 15th of the month before the date the rate was set for the final time. Since the lock-in date was April 15, the applicable Treasury yield date is April 15, as posted on the FFIEC HMDA web site.

2. Determine the Treasury yield corresponding to loan term.

To find the relevant Treasury yield, the lender would identify the applicable Treasury yield date in the left-hand column of the table and travel across the row until the yield corresponding to the term of the loan has been reached. For this example, assume the Treasury yield with a comparable maturity of 15 years (loan term) is 4.25 percent.

3. Determine the spread between the relevant Treasury yield and the disclosed APR.

Compare the disclosed APR and relevant Treasury yield and determine the difference or spread. In this example, the difference between the disclosed APR of 5.75 and the Treasury yield of 4.25 is 1.50 percentage points.

4. Determine the lien status.

The rate spread must be considered in light of the lien status. The loan is in the first-lien position.

In this instance, the lender would report “NA” in the rate spread field on the HMDA-LAR because the rate spread did not equal or exceed the 3-percentage point threshold for first-lien loans.

 

EXAMPLE THREE: LOCK-IN DATE AFTER THE 15th OF THE CURRENT MONTH

FACTS: Chris and Kelly Rodriguez contact The Bank of Hargrove to obtain interest rates for a home purchase loan. The bank quotes an interest rate of 6.5 percent on March 19 for a 20-year loan. The applicants accept the terms, and the bank verbally locks the rate on March 20. The mortgage is in a first-lien position. The loan is originated with a corresponding APR of 7.0 percent.

QUESTION

What is the rate spread and how should it be reported on the lender’s HMDA-LAR?

ANSWER

1. Determine the Treasury yield date.

The lock-in date in this example is March 20, even though a written rate lock agreement was not executed. Verbal agreements to lock rates are treated the same as written lock agreements. Using the process described in Examples One and Two, the applicable Treasury yield date on the “Treasury Securities of Comparable Maturity under Regulation C” table is March 15, as posted on the FFIEC HMDA web site

2. Determine the Treasury yield corresponding to loan term.

Using the process described in Examples One and Two, assume the Treasury yield corresponding to a 20-year loan is 4.60 percent.

3. Determine the spread between the relevant Treasury yield and the disclosed APR.

Using the process described in Examples One and Two, the spread or difference between the disclosed APR of 7.0 and the Treasury yield of 4.6 is 2.4 percentage points.

4. Determine the lien status.

The loan is in a first-lien position.

In this instance, the lender would report “NA” in the rate spread field of the HMDA/ LAR because the spread did not equal or exceed the 3-percentage point threshold for first-lien loans.

EXAMPLE FOUR: SUBORDINATE LIEN POSITION

FACTS: Bob and Lindsey Smith decide to remodel their kitchen. After contacting a few contractors for bids, they realize that they will have to borrow the money to complete the project. They explain to Bank of Louisburg that they currently have a first mortgage against their home with some equity. The bank determines that the Smiths qualify for a $25,000 loan to be secured by a second mortgage on their home and quotes an interest rate of 7.25 percent. No rate lock agreement was executed, and the rate was allowed to float. The bank set the rate for the final time on March 19 before closing the loan on March 25. Based on the bank’s terms and conditions, the corresponding APR is 7.75 percent.

QUESTION

What is the rate spread and how should it be reported on the lender’s HMDA-LAR?

ANSWER

1. Determine the Treasury yield date.

The rate was set for the final time on March 19, which is the lock-in date. Using the process described in Examples One and Two, the applicable Treasury yield date on the “Treasury Securities of Comparable Maturity under Regulation C” table is March 15, as posted on the FFIEC HMDA web site.

2. Determine the Treasury yield corresponding to the loan term.

Using the process described in Examples One and Two, assume the Treasury yield corresponding to a loan with a five-year maturity is 2.9 percent.

3. Determine the spread between the relevant Treasury yield and the disclosed APR.

Using the process described in Examples One and Two, the spread or difference between the disclosed APR of 7.75 and the Treasury yield of 2.9 is 4.85.

4. Determine the lien status.

The lien is in a subordinate-lien position.

In this instance, the lender would report “NA” in the rate spread field because the spread did not equal or exceed the 5-percentage point threshold for subordinate-lien loans.

 

EXAMPLE FIVE: LOAN APPROVED BUT NOT ACCEPTED

FACTS: Henry Wallace decides to build a garage. He begins shopping for the best loan terms. He contacts First Community Bank and applies for a $30,000 home improvement loan on March 24. The bank approves the application on March 25 at an interest rate of 7.5 percent with a loan term of 10 years. On March 26, Mr. Wallace informs the bank that he received a better deal from another lender and will not be accepting the credit offered by First Community Bank.

QUESTION

Is this application HMDA reportable for First Community Bank?

ANSWER

Yes, this application for a home improvement loan was underwritten under the standards typically used by First Community Bank, and an offer of credit was extended.

QUESTION

What is the rate spread and how is the rate spread reported for this application?

ANSWER

In cases where the application does not result in an origination, the lender should report “NA” in the rate spread field.

EXAMPLE SIX: FIRST-LIEN REFINANCE OF CURRENT HOME

FACTS: The Wilsons decide that they would like to refinance their current home mortgage to obtain a better interest rate. They contact Lowrate Mortgage Co. to request information on current interest rates. The lender quotes an interest rate of 6.25 percent for a 25-year mortgage. The Wilsons accept these terms and the lender executes a 30-day rate lock agreement on April 19. The application results in a loan origination on May 15. Based on the lender’s terms and conditions, the APR is 7.0 percent. The loan will be in a first-lien position.

QUESTION

What is the rate spread and how should it be reported on the Lowrate Mortgage Company’s HMDA-LAR?

ANSWER

1. Determine the Treasury yield date.

The lock-in date in this example is April 19. Using the process described in Examples One and Two, the applicable Treasury yield date on the “Treasury Securities of Comparable Maturity under Regulation C” table is April 15, as posted on the FFIEC HMDA web site.

2. Determine the Treasury yield corresponding to the loan term.

Using the process described in Examples One and Two, assume the Treasury yield corresponding to a loan with a 25-year maturity is 4.75 percent.

3. Determine the spread between the relevant Treasury yield and the disclosed APR.

Using the process described in Examples One and Two, the spread or difference between the disclosed APR of 7.0 and the Treasury yield of 4.75 is 2.25 percentage points.

4. Determine the lien status.

The loan is in a first-lien position.

In this instance, the lender would report “NA” in the rate spread field because the spread does not equal or exceed the 3-percentage point threshold for first-lien loans.

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