HOEPA, or the Home Ownership and Equity Protection Act, is designed to protect homeowners from predatory lenders and scammers who would seek to strip homes of their equity using abusive or deceptive lending practices. In order to keep bad actors from scamming or misleading borrowers, the law comes with certain requirements that the borrower must receive from the lender at least 3 business days before closing the loan.
HOEPA Disclosure Requirements
- The lender must provide in writing a notice that states the loan does not need to be finalized at this point. This is true even after one has signed the loan application. After you get the disclosures, you still have 3 business days to decide whether to sign the final loan agreement. You can back out at this point, and the lender must disclose this fact to you.
- The lender’s written disclosure must inform you that the loan constitutes a mortgage, so your home can be taken by the lender (potentially along with any equity you have built up in the home) if you fail to make your loan payments.
- The written disclosure must provide the loan’s APR (Annual Percentage Rate), the amount you will have to pay each month, and the total loan amount (if you are refinancing your mortgage). If your payments include a scheduled balloon payment, this must also be disclosed, and if the total loan amount includes credit or mortgage insurance premiums, that must be included in the disclosure as well. If you get a variable rate loan, the disclosure must inform you how much your monthly payment may increase, up to a disclosed maximum amount. It must also disclose how high your rate may go up.
Three-day waiting period
After you get these disclosures (sometimes called “Section 32 disclosures”) your loan cannot proceed until 3 business days have passed. There is no way to bypass this waiting period. After the 3 day period, if you still wish to proceed, then you can sign the loan agreement and formalize the loan.
If your lender violates this law, you will be eligible to sue them for violating the HOEPA disclosure requirements. In the case of a violation, you may have up to 3 years to cancel the loan. If you have any questions about HOEPA disclosures, call us to talk to a HUD approved housing counselor. We can look over your loan’s disclosures with you and give you expert advice and answers to any of your questions.