This tool facilitates the determination of the difference between the annual percentage rate (APR) on a mortgage loan and a benchmark rate, typically based on the average prime offer rate for a comparable transaction. The resultant figure is used to identify higher-priced mortgage loans, as defined under the Home Mortgage Disclosure Act (HMDA). For example, if the APR on a first-lien mortgage exceeds the average prime offer rate by 1.5 percentage points or more, the loan is categorized as higher-priced.
Calculating this rate difference is essential for regulatory compliance and consumer protection. Accurate determination allows financial institutions to fulfill their HMDA reporting obligations, providing transparency into lending practices and enabling oversight for potential discriminatory pricing. Historically, it has been used to monitor and address disparities in access to affordable mortgage credit, particularly in underserved communities, thereby playing a role in mitigating unfair lending practices.
