When is a residential loan considered a Higher Priced Mortgage Loan (HPML)?

A residential loan is considered a Higher Priced Mortgage Loan (HPML) when it exceeds the Average Prime Offer Rate (APOR) by 1.5% or more for a first lien. This classification is significant because it triggers specific regulations under the Truth in Lending Act (TILA) aimed at protecting consumers from potentially predatory lending practices. The HPML designation is related to the risk associated with higher interest rates, as loans that fall into this category may result in higher costs for borrowers compared to traditional prime loans.

To understand why this threshold is important, it's essential to consider that the regulations are designed to ensure loans that carry a higher cost receive additional scrutiny regarding the lending process, including the borrower's ability to repay the loan and other relevant consumer protections. This helps to foster greater transparency and accountability in the lending industry, ultimately aiming to protect consumers from loans that might impose undue financial burdens.