Question

Consider a first-lien transaction of $250,000 with an APR of 11%, secured by a mobilehome used as a primary residence. The APOR for a comparable transaction is 4%. Is this transaction a Section 32 loan?

A) Yes
B) No

Answer 1

The transaction with an APR of 11% and an APOR of 4% would be considered a Section 32 loan because the APR exceeds the APOR by more than 6.5 percentage points, which is the threshold for a first-lien loan amounting to $50,000 or more.

Step-by-step explanation:

To determine whether a transaction is a Section 32 loan, we compare the Annual Percentage Rate (APR) of the loan with the Average Prime Offer Rate (APOR) for a similar transaction. According to the Home Ownership and Equity Protection Act (HOEPA), a transaction is considered high-cost and thus a Section 32 loan if the APR is more than 6.5 percentage points higher for a first-lien loan if the loan amount is $50,000 or more (this threshold adjusts annually based on the Consumer Price Index).

In this scenario, the APR is 11%, while the APOR is 4%. The difference between the APR and the APOR is 11% - 4% = 7%, which is more than the 6.5 percentage points threshold. Therefore, given these figures, the transaction would qualify as a Section 32 loan because the APR exceeds the APOR by more than the stipulated amount.

Understanding these details can help borrowers be aware of the terms of their mortgage loans and the potential implications of being involved in a high-cost loan, such as the extra regulatory disclosures and consumer protections associated with Section 32 loans.