themortgagellm^™

Response

Higher-Priced Mortgage Loan (HPML) is defined under Reg Z as: rate_spread ≥ 1.5 pp for first liens (or ≥ 3.5 pp for subordinate liens), or HOEPA-flagged.

For the application profile you described:

• FHA, FICO 660, DTI 42, LTV 95, owner-occupied first-lien purchase, $400K loan amount, $70K income

The Higher-Priced model returns:

• Calibrated probability: 0.203 (20.3%)
• Risk band: P90 (top decile — above the model's 90th-percentile threshold of 15.9%)
• Operating recommendation: ABOVE BASELINE — likely a meaningful HPML risk; flag for rate-spread disclosure review pre-funding.

Interpretation: The 660 FICO / 42 DTI combination is the strongest upward driver — FHA loans in the 640-680 FICO band run several multiples above the baseline HPML rate. The 95 LTV is structurally consistent with FHA and contributes only modest marginal effect.

For a borrower at this risk band, expect pricing roughly 100-200 bps above the prevailing FHA par rate, and HMDA-reportable rate-spread disclosure on the originated loan.

Reference: Industry baseline HPML rate across the 2018-2023 origination universe is approximately 5.8% (the model's true_positive_rate calibration anchor). This applicant's predicted 20.3% probability sits roughly 3.5× the population baseline — consistent with sub-680 FHA pricing patterns.

Calibration: Test-set AUC 0.93 (2024-2025 cross-cycle holdout), ECE 0.0003 — predicted probabilities track realized HPML rates closely on the test population.