What Is the Average Prime Offer Rate (APOR) in Mortgage?

The Average Prime Offer Rate (APOR) is a benchmark in the mortgage industry, influencing how loans are categorized and regulated. Understanding APOR is important for consumers, as it determines the level of protection and specific requirements associated with their mortgage. It helps classify loans, ensuring borrowers receive appropriate disclosures and safeguards.

Understanding the Average Prime Offer Rate (APOR)

The Average Prime Offer Rate (APOR) is an annual percentage rate (APR) representing average interest rates, points, and other loan pricing terms. It indicates a benchmark for prime mortgage transactions, reflecting a composite of rates from a representative sample of creditors for various mortgage products.

The Consumer Financial Protection Bureau (CFPB) publishes APORs weekly on the Federal Financial Institutions Examination Council (FFIEC) website. Its calculation relies on survey data, historically from the Freddie Mac Primary Mortgage Market Survey (PMMS), and more recently from ICE Mortgage Technology data. This survey ensures the rate remains current and reflective of market conditions for a broad range of mortgage types.

APOR is derived from data on several mortgage products, including various fixed-rate loans (like 30-year, 20-year, 15-year, and 10-year) and adjustable-rate mortgages (ARMs). It provides a consistent reference point for lenders and regulators. This benchmark helps maintain transparency and fairness across the mortgage lending landscape.

APOR’s Role in Mortgage Classification

APOR plays a significant role in classifying mortgage loans under the Truth in Lending Act (TILA). This classification triggers specific regulatory requirements designed to protect consumers. Loans with annual percentage rates exceeding APOR by certain thresholds are identified as “High-Cost Mortgages” or “Higher-Priced Mortgage Loans” (HPMLs).

High-Cost Mortgages fall under the Home Ownership and Equity Protection Act (HOEPA), an amendment to TILA aimed at combating predatory lending practices. A loan is considered high-cost if its APR exceeds the APOR for a comparable transaction by a specific margin. For most first-lien loans, this threshold is 6.5 percentage points above APOR.

For junior-lien (second mortgage) loans, or smaller first-lien loans secured by personal property (typically under $50,000), the threshold is 8.5 percentage points above APOR. HOEPA coverage can also be triggered by excessive points and fees. For instance, loans over $20,000 may be high-cost if points and fees exceed 5% of the total loan amount.

Higher-Priced Mortgage Loans (HPMLs) represent a broader category of loans with above-average costs, also regulated under TILA. An HPML is triggered if its APR exceeds the APOR by a smaller margin than HOEPA loans. For most first-lien mortgages, the APR must be 1.5 percentage points or more above APOR.

First-lien jumbo loans are classified as HPMLs if their APR is 2.5 percentage points or more above APOR. For subordinate-lien mortgages, the threshold is 3.5 percentage points or more above APOR. These distinctions ensure that a wider range of loans with moderately higher rates receive additional scrutiny and borrower protections.

Borrower Protections and Requirements Based on APOR

Once a mortgage loan is classified as a High-Cost Mortgage or a Higher-Priced Mortgage Loan due to its rate spread above APOR, specific legal requirements and borrower protections are triggered. These provisions aim to safeguard consumers from potentially abusive lending practices and ensure transparency.

For High-Cost Mortgages, the Home Ownership and Equity Protection Act (HOEPA) imposes several requirements. Borrowers must complete mandatory credit counseling with a U.S. Department of Housing and Urban Development (HUD)-approved agency before closing. Lenders must provide a list of counseling organizations within three business days of receiving the loan application.

HOEPA also prohibits certain loan terms detrimental to the borrower. This includes restrictions on balloon payments, with limited exceptions, and a prohibition on prepayment penalties. Lenders cannot structure these loans with negative amortization, where the loan balance increases even with regular payments, nor can they finance points and fees into the loan amount.

Lenders must provide specific disclosures to borrowers at least three business days before closing a high-cost mortgage. These disclosures detail the loan amount, the annual percentage rate, monthly payment specifics, and any potential changes to the interest rate. Lenders must also assess a borrower’s ability to repay the loan, considering their income, assets, and overall debt obligations.

For Higher-Priced Mortgage Loans (HPMLs), different protections apply. Lenders must establish an escrow account for first-lien HPMLs to cover property taxes and insurance premiums. This escrow account must be maintained for at least five years.

HPMLs also come with specific appraisal requirements. Lenders must obtain a written appraisal from a licensed or certified appraiser, which typically includes a physical interior inspection of the property. For properties considered “flipped” (resold within a short period at a higher price), a second appraisal may be required to confirm the property’s value.