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Financial Services Law Insights and Observations

CFPB revises APOR methodology

Federal Issues CFPB Consumer Finance Consumer Lending Interest Rate Mortgages

Federal Issues

On April 14, the CPFB announced a revised version of its Methodology for Determining Average Prime Offer Rates (APORs). APORs are a series of benchmark APRs derived from the average interest rates and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage loans with low-risk pricing characteristics. APORs are used to determine whether a particular loan is a “Qualified Mortgage” or a “Higher-Priced Mortgage Loan,” which determines the treatment of that loan under various consumer protection laws.

The methodology statement has been revised to address the imminent unavailability of certain data the CFPB previously relied on to calculate APORs. Specifically, Freddie Mac recently made changes to its Primary Mortgage Market Survey (PMMS) used to calculate APORs for three types of loans. These changes make the PMMS unsuitable to be used in the APOR calculations. The CFPB is replacing data from the PMMS with data from ICE Mortgage Technology. This change also requires the CFPB to change certain of the product types for which APORs are produced. The CFPB will begin using ICE Mortgage Technology data and the revised methodology to calculate APORs on April 21, 2023.

We note that the CFPB is not changing the frequency of the APOR calculations, which will still be calculated on a weekly basis. These changes will therefore not address industry concerns that the APORs can be as much as seven days old, which can result in the APORs being significantly different than the actual market rates on a given day. This dissonance can lead to significant issues during periods where interest rates rise rapidly as we saw during much of 2022.