What is the maximum percentage over the APOR that qualifies a second lien loan as high cost?

The correct answer is that a second lien loan is classified as high cost if the APR exceeds the Average Prime Offer Rate (APOR) by more than 8.5%. This threshold is significant because it helps to identify loans that may pose a higher risk to consumers due to excessive costs. The high-cost mortgage regulations, established by the Truth in Lending Act (TILA), are designed to protect borrowers from loans with unfavorable conditions, thus ensuring that lending practices remain fair and transparent.

Identifying loans over this percentage is crucial for both lenders and borrowers. For lenders, it ensures compliance with federal regulations and helps them avoid potential legal repercussions. For borrowers, being aware of these thresholds can aid them in recognizing when a loan might not be in their best financial interest, prompting them to seek alternative lending options or negotiating terms that could be more advantageous.