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FFIEC Rate Spread Formula:
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The FFIEC (Federal Financial Institutions Examination Council) Rate Spread represents the difference between a loan's Annual Percentage Rate (APR) and the yield on a comparable maturity Treasury security. It is used to identify higher-priced mortgage loans under regulatory requirements.
The calculator uses the FFIEC Rate Spread formula:
Where:
Explanation: The spread calculation helps determine if a mortgage loan is considered higher-priced under regulatory thresholds set by the Federal Reserve.
Details: Accurate rate spread calculation is crucial for regulatory compliance, helping financial institutions identify higher-priced mortgage loans that may trigger additional consumer protection requirements under HMDA (Home Mortgage Disclosure Act) regulations.
Tips: Enter the loan's Annual Percentage Rate and the comparable Treasury yield as percentages. Both values must be valid non-negative numbers.
Q1: What is the regulatory threshold for higher-priced loans?
A: Generally, a spread of 1.5 percentage points for first-lien loans and 3.5 percentage points for subordinate-lien loans above the average prime offer rate.
Q2: Why is Treasury yield used as a benchmark?
A: Treasury securities are considered risk-free benchmarks, making them appropriate for comparing the risk premium in mortgage loans.
Q3: How often should rate spread be calculated?
A: Rate spread should be calculated for each mortgage application to ensure compliance with HMDA reporting requirements.
Q4: Are there different Treasury maturities used?
A: Yes, the Treasury security maturity should match the loan term (e.g., 15-year Treasury for 15-year mortgages, 30-year for 30-year mortgages).
Q5: What are the consequences of incorrect rate spread calculation?
A: Incorrect calculations can lead to regulatory violations, inaccurate HMDA reporting, and potential penalties from regulatory agencies.