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Transition Rules

Reporting Applications received before October 1, 2009 and originating on or after January 1, 2010.

Transition rules were developed to provide lenders with guidance for reporting rate spread data for changes effective October 1, 2009. For applications received before October 1, 2009, and originated before January 1, 2010, the revised rules for determining rate spread do not apply and lenders should calculate the rate spread using the “Treasury Securities of Comparable Maturity under Regulation C”.   For applications received on or after October 1, 2009 and for loans originated on or after January 1, 2010 (regardless of their application dates), lenders should use the calculation method described in the Rate Spread section of this site.

Transition Rules

Application Date

Calculator to Use

October 1, 2009 or after

New Calculator

Before October 1, 2009

Old Calculator

Before October 1, 2009, but action taken (loan closed) on or after January 1, 2010

New Calculator

Old Rate Spread Calculation method using the Treasury Securities of Comparable Maturity under Regulation C table

For applications received before October 1, 2009, where origination is before January 1, 2010, 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

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. The Treasury yield date is the 15th of the preceding month if the rate is set between the 1st and 14th of the month and the 15th of the current month if the rate is set on or after the 15th day.

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, 2009

February 15, 2009

March 15, 2009

March 15, 2009

March 31, 2009

March 15, 2009

May 13, 2009

April 15, 2009

To aid lenders in calculating and reporting rate spreads, the Treasury yields are 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” for loans applied for before October 1, 2009, and originated before January 1, 2010. 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 under the old rules.

THE OLD RATE SPREAD CALCULATOR

The FFIEC’s Old Rate Spread Calculator (RSC) is still available to lenders on the FFIEC web site. Lenders can still download the “Treasury Securities of Comparable Maturity under Regulation C” table each month to be used with either in-house or third party systems. The web site allows lenders to perform calculations one transaction at a time or in batches of 10 loans.

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 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.

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.

DECIDING WHICH METHOD APPLIES

The following examples illustrate the application of the transition rules when calculating the rate spread in using either the old method which calculates the rate spread using the “Treasury Securities of Comparable Maturity under Regulation C” table or the new method using the “Average Prime Offer Rate-Fixed and “Average Prime Offer Rate-Adjustable” tables. All tables used can be found at http://www.ffiec.gov/ratespread and should be viewed when reading the examples. Note that the Treasury yield dates, Treasury yields, Average Prime Offer effective dates and Average Prime Offer Rates 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 FOR APPLICATION RECEIVED BEFORE OCTOBER 1, 2009, AND CLOSING BEFORE JANUARY 1, 2010

FACTS: Sue Wade applies for a $175,000 loan on September 23, 2009 with NorthCo National Bank to purchase a home. She executes a rate lock agreement on September 28, 2009 with her lender for 7.0 percent for a 15-year loan. She qualifies for the loan, and NorthCo originates the loan on October 30, 2009. 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

The application was received before October 1, 2009, and originated on October 30, 2009 so the old method using the "Treasury Securities of Comparable Maturity under Regulation C" would be used and be computed and reported as follows:

  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 Septermber 28, 2009.

    Locate the applicable Treasury yield date in the left-hand column of the table, which is the most recent 15th of the month as of 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 September 15, 2009, as posted on the FFIEC HMDA web site.

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

    3. 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.

    4. 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.

    5. 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).

 

EXAMPLE TWO: CALCULATE RATE SPREAD FOR ADJUSTABLE RATE LOAN APPLICATION RECEIVED AFTER OCTOBER 1, 2009

FACTS: Harry and Sally Jones apply for a $250,000, 30- year Adjustable Rate Mortgage loan to purchase a new home on October 2, 2009. NorthStar State Bank quotes a rate of 5.25 percent loan which will adjust after the first 7 years. The Joneses agree to the terms and execute a rate lock agreement on October 5, 2009. The Joneses qualify for the loan, and it is originated on October 22, 2009. The mortgage is in a first lien position. The corresponding APR is 5.75 percent.

QUESTION

Which method will be used for calculating rate spread and how should it be reported on the lender's HMDA LAR?

ANSWER

The lender would use the new method for the calculation of the rate spread because the loan was applied for after October 1, 2009. The rate spread would be calculated as follows:

  1. Determine the Amortization type.

    In order to determine the appropriate "Average Prime Offer Rate" table, identify the amortization type, fixed or adjustable. In this example, the amortization type is adjustable.

  2. Determine the Lock date.

    3. In order to determine the appropriate Average Prime Offer Rate-Adjustable rate to reference, identify the lock-in date. In this case, the lock-in date is October 5, 2009.

  3. Determine the Average Prime Offer Rate corresponding to the initial rate term.

    4. Locate the applicable Average Prime Offer Rate effective date in the left-hand column of the Average Prime Offer Rate-Adjustable table, which is the most recent Monday before the rate was set for the final time. In this example, the applicable Average Prime Offer Rate date on the Average Prime Offer Rate-Adjustable table is October 5, 2009, as posted on the FFIEC HMDA web site.

    To find the relevant Average Prime Offer Rate, identify the applicable Average Prime Offer Rate effective date (October 5, 2009) in the left-hand column of the table and travel across the row until the yield corresponding to the initial rate term of the loan has been reached. For this example, assume the Average Prime Offer Rate of 7 years (initial rate term) is 4.65 percent.

  4. Determine the spread between the relevant Average Prime Offer Rate and the disclosed APR.

    5. Compare the disclosed APR and relevant Average Prime Offer Rate and determine the difference or spread. In this example, the difference between the disclosed APR of 5.75 and the Average Prime Offer Rate yield of 4.65 is 1.10 percentage points.

  5. Determine the Lien status.

    6. 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 does not exceed the 1.5 percentage point threshold for first lien loans.

 

EXAMPLE THREE: LOCK-IN DATE ON THE 15th OF THE CURRENT MONTH FOR ADJUSTABLE RATE LOAN APPLICATION RECEIVED PRIOR TO OCTOBER 1, 2009, AND ORIGINATING BEFORE JANUARY 1, 2010

FACTS: Harry and Sally Goldstein apply for a $355,000 Adjustable Rate Mortgage loan to purchase a new home on September 15, 2009. NorthStar State Bank quotes a rate of 6.25 percent for a 15-year term. The Joneses agree to the terms and execute a rate lock agreement on September 15, 2009. The Joneses qualify for the loan, and it is originated on October 15, 2009. The mortgage is in a first lien position. The corresponding APR is 6.75 percent.

QUESTION

What method should be used to calculate the rate spread and how should it be reported on the lender's HMDA LAR?

ANSWER

In this example, the old method of calculating the rate spread using the “Treasury Securities of Comparable Maturity under Regulation C” should be used because the application was received before October 1, 2009, and originated before January 1, 2010.

  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 (September 15, 2009). For the lock-in date of September 15, the applicable Treasury yield date is located in the left-hand column of the table and is the most recent 15th of the month as of the date the rate was set for the final time. Since the lock-in date was September 15, 2009, the applicable Treasury yield date is September 15, 2009 as posted on the FFIEC HMDA web site.

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

    3. To find the relevant Treasury yield, the lender would identify the applicable Treasury yield date (September 15, 2009) 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.

    4. Compare the disclosed APR and relevant Treasury yield and determine the difference or spread. In this example, the difference between the disclosed APR of 6.75 and the Treasury yield of 4.25 is 2.50 percentage points.

  4. Determine the Lien status.

    5. 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 poing threshold for first-lien loan.

    .

 

EXAMPLE FOUR: CALCULATE RATE SPREAD FOR A FIXED RATE LOAN APPLICATION RECEIVED BEFORE OCTOBER 1, 2009, AND ORIGINATING AFTER JANUARY 1, 2010.

FACTS: Chris and Kelly Rodriguez will be transferring to a new city where they have found a new home in the next 30 days. On September 15, 2009 the couple contacted The Bank of Hargrove to obtain interest rates for a home purchase loan. The bank quotes an interest rate of 6.5 percent for a 20-year fixed rate loan. The applicants accept the terms, and the bank verbally locks the rate. The mortgage is in a first lien position. Due to pending business projects, the move is delayed for several months and the rate expires and is locked-in a second time on November 15, 2009 at 6.25 percent and yet a third time December 15, 2009 at 5.75. The transfer finally becomes final on December 23, 2009 and the loan is originated January 6, 2010 with a corresponding APR of 6.25 percent.

QUESTION

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

ANSWER

Since the loan application was originated after January 1, 2010, the new method would be used and the rate spread would be computed as follows:

  1. Determine the Amortizaton type.

    In order to determine the appropriate "Average Prime Offer Rate" table, identify the amortization type, fixed or adjustable. In this example, the amortization type is fixed.

  2. Determine the Lock date.

    3. In order to determine the appropriate Average Prime Offer Rate to reference, identify the lock-in date. In this case, the lock-in date is December 15, 2009.

  3. Determine the Average Prime Offer Rate corresponding to the rate term.

    4. Locate the applicable Prime Offer Rate effective date in the left-hand column of the Average Prime Offer Rate-fixed table, which is the most recent Monday before the rate was set for the final time. In this example, the applicable Average Prime Offer Rate date is December 14, 2009, as posted on the FFIEC HMDA web site Friday, December 11, 2009.

    To find the relevant Average Prime Offer Rate, identify the applicable Average Prime Offer Rate effective date of December 14, 2009 in the left-hand column of the table, and travel across the row until the term of the loan has been reached. For this example, assume the Average Prime Offer Rate of 20 years is 4.65 percent.

  4. Determine the spread between the relevant Average Prime Offer Rate and the disclosed APR.

    5. Compare the disclosed APR and relevant Average Prime Offer Rate and determine the difference or spread. In this example, the difference between the disclosed APR of 6.25 and the Average Prime Offer Rate of 4.65 is 1.60 percentage points.

  5. Determine the Lien status.

    6. 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 1.60 in the rate spread field on the HMDA LAR because the rate spread exceeds the 1.5 percentage point threshold for first lien loans.

 

EXAMPLE FIVE: 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. When the couple goes to apply for the loan on September 11, 2009, 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 fixed rate loan to be secured by a second mortgage on their home and quotes an interest rate of 7.25 percent for 10 years. No rate lock agreement was executed, and the rate was allowed to float. The bank set the rate for the final time on October 14, 2009 before closing the loan on October 23, 2009. Based on the bank’s terms and conditions, the corresponding APR is 7.75 percent.

QUESTION

Which method for rate spread calculation would be used and should it be reported on the lender's HMDA LAR?

ANSWER

The lender would calculate the rate spread using the "Treasury Securities of Comparable Maturity under Regulation C" table by doing the following:

  1. Determine the Treasury yield date.

    The rate was set for the final time on October 14, 2009, which is the lock-in date. Using the process described in Examples One and Three, the applicable Treasury yield date on the “Treasury Securities of Comparable Maturity under Regulation C” table is September 15, 2009, as posted on the FFIEC HMDA web site.

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

    3. Using the process described in Examples One and Three, assume the Treasury yield corresponding to a loan with a 10 year maturity is 3.85 percent.

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

    4. Using the process described in Examples One and Three, the spread or difference between the disclosed APR of 7.75 and the Treasury yield of 3.85 is 3.90.

  4. Determine the Lien status.

    5. 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.

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