The Home Ownership and Equity Protection Act (HOEPA) is a federal law passed in 1994 to protect consumers from abusive mortgage lending practices. HOEPA is part of the larger Truth in Lending Act (TILA) and focuses on high cost mortgages, including certain refinances and home equity loans. It sets rules that lenders must follow when offering these types of loans to make sure borrowers are treated fairly.
Originally, HOEPA targeted home equity mortgage loans with high interest rates and high fees. Today, the law covers a wider range of mortgage types and requires lenders to be more transparent. If a loan meets the criteria to be classified as a high-cost mortgage, then it comes with strict rules around disclosures, fees, counseling, and loan terms.
To help borrowers make smart choices, HOEPA also works alongside the Real Estate Settlement Procedures Act (RESPA) and Regulation Z. These rules make sure consumers get the full picture before signing a mortgage agreement.
If you’re unsure whether a loan falls under HOEPA, it’s a good idea to speak with a HUD-approved housing counselor. Organizations like Credit.org offer free counseling to help you navigate home loans safely.
HOEPA is often referred to as the Equity Protection Act because it was designed to protect your home equity—one of the most valuable assets you can have. When lenders charge too many points and fees, or offer unfair terms, borrowers can lose equity fast. This law helps stop that from happening.
Under the equity protection act HOEPA framework, lenders must avoid certain loan terms that hurt the borrower and give clear disclosures about the true costs of the loan. These protections cover both closed end credit transactions and open-end credit plans like home equity lines of credit (HELOCs).
One important part of the act is that lenders must provide a list of homeownership counseling organizations within three business days of the mortgage application. The borrower must also complete counseling with a HUD-approved agency before finalizing a high-cost mortgage.
A mortgage is considered “high-cost” if it meets certain thresholds related to the interest rate, points and fees, or prepayment penalties. These thresholds are regularly updated to reflect changes in the market.
Here’s how a mortgage qualifies as high-cost:
To see the current APOR and stay compliant, lenders use the official rate published at ffiec.gov/ratespread.
The consumer protection act behind HOEPA puts strong rules in place for lenders. These rules are meant to stop harmful practices, like steering borrowers into bad loans or charging fees that aren’t justified.
For example, mortgage brokers and lenders are not allowed to suggest that a borrower should stop making payments on an existing loan in order to qualify for a high-cost loan. That kind of advice can lead to foreclosure or serious damage to a borrower’s credit.
In addition, fees must be limited:
There’s also a rule that lenders can’t break one large loan into two smaller ones just to get around the points and fees threshold. That practice is called “structuring a transaction to evade HOEPA coverage,” and it’s strictly prohibited.
HOEPA applies to more loans than many people realize. Covered loan types include:
However, not every loan is subject to HOEPA. Here are some types that are exempt:
To stay compliant, it’s essential to know whether the loan in question falls into one of these categories. If you’re a lender, failing to do so can result in serious penalties.
The Consumer Financial Protection Bureau (CFPB) is the agency in charge of enforcing HOEPA rules. The CFPB creates guidelines, publishes updates to coverage thresholds, and offers tools to help both consumers and lenders understand their rights and responsibilities.
They also maintain a list of HUD-approved housing counseling agencies, which lenders are required to share with borrowers during the mortgage application process. You can find the most up-to-date list of approved agencies at consumerfinance.gov/mortgagehelp.
This central role by the CFPB is part of a larger move to protect consumers across all types of financial transactions—not just mortgages.
The 2010 Dodd Frank Act made many changes to the mortgage industry, including expanding HOEPA’s reach. Two major additions are:
These updates help make the mortgage process safer and fairer for everyone involved.
The equity protection act HOEPA rules are clear: if a loan is classified as high-cost, the lender must follow strict requirements. These include:
These disclosures must be written in simple language so that borrowers can understand them. The idea is to help consumers make informed decisions and avoid traps that lead to foreclosure or financial crisis.
Many people wonder whether alternative mortgages are included under HOEPA. These include loan types that don’t follow standard lending guidelines, like:
If these loans meet the HOEPA coverage criteria—especially in terms of APR, points and fees threshold, or prepayment penalties—they are regulated under HOEPA.
For example, a balloon payment loan might be considered high-cost if the APR is too high or the fees exceed the allowed threshold. HOEPA also specifically restricts balloon payments in most high-cost loans unless they meet very specific criteria, such as being part of a temporary bridge loan or offered by certain small creditors.
HOEPA loans must pass a fees threshold test. If a loan’s total points and fees are too high, it qualifies as high-cost—even if the interest rate is low. The formula depends on the size of the loan:
Fees that count toward this total include:
Be careful—these calculations include more than just closing costs. Many hidden fees can push a loan over the threshold and make it a HOEPA-covered loan.
To determine HOEPA coverage, lenders must look at three main areas:
Each of these areas has strict limits. If a loan crosses even one of them, it must follow all the rules for high-cost mortgages under HOEPA.
High cost mortgages come with many restrictions on loan terms. These rules are meant to prevent lenders from including features that trap consumers in long-term debt or make it difficult to repay. Prohibited or restricted terms include:
In addition, HOEPA limits or bans the following practices:
These protections reduce the chances of borrowers being caught in a cycle of refinancing and losing equity through fees and charges.
One of HOEPA’s strongest protections is the requirement for homeownership counseling. This rule ensures that borrowers understand the terms of their loan before closing.
Lenders must:
The borrower must complete counseling after receiving their RESPA loan estimate or disclosure. Counseling can be done by phone, and the certificate can be delivered by mail, email, or fax—as long as it’s in a form the borrower can keep.
Lenders are allowed to pay the counseling fee, but they can’t make the loan approval depend on whether the consumer chooses to use their payment. Consumers may also pay for counseling themselves.
The Consumer Financial Protection Bureau (CFPB) plays a key role in HOEPA enforcement. They are responsible for:
If a lender violates HOEPA rules, the CFPB can investigate and penalize them. Consumers also have the right to sue if they were misled or harmed by a lender’s failure to comply with HOEPA.
Visit the CFPB’s official mortgage help page to learn more about your rights.
Some lenders might try to avoid HOEPA rules by restructuring a loan. For example, they might split one loan into two to reduce the total points and fees below the threshold. This is known as “structuring a transaction to evade HOEPA coverage”, and it’s not allowed.
Other red flags include:
If something about your loan seems unclear or unfair, speak to a HUD-certified counselor right away. You can also report violations directly to the CFPB.
Home ownership is one of the most important ways families build long-term wealth. But during the early 1990s and again during the financial crisis of the 2000s, many homeowners lost their homes because of risky or deceptive mortgage loans. The Home Ownership and Equity Protection Act (HOEPA) was created to help stop this from happening again.
By setting rules around high cost loans, HOEPA reduces the chances of foreclosure and protects a borrower’s ownership interest in their property. Borrowers now get better information, safer loan terms, and more time to review their options. The act doesn’t just protect homeowners—it also makes the mortgage industry more transparent and fair.
Lenders that violate HOEPA may face civil penalties, enforcement actions, or lawsuits. Borrowers who think their rights were violated should contact a certified housing counselor or file a complaint with the Consumer Financial Protection Bureau.
Understanding what counts toward the points and fees threshold is essential for determining HOEPA coverage. These charges add up fast and can turn a regular mortgage into a high-cost mortgage.
The following costs are included:
On the other hand, some costs may be excluded from the HOEPA calculation if they meet certain conditions, such as bona fide third-party fees not retained by the lender or broker.
If a loan is misclassified due to incorrect calculation of fees, lenders may still be held responsible for violations of HOEPA coverage rules. That’s why precision and compliance with the CFPB’s guidelines are critical.
High-cost loans typically come with stricter limits on monthly payment amounts and loan terms. Lenders must show the highest possible payment that might be required—especially for loans with adjustable rates or step-rate terms. The goal is to make sure borrowers aren’t surprised by major jumps in their monthly payment after a few months or years.
Loan terms must also meet other HOEPA protections:
This structure helps borrowers plan for long-term housing expenses without falling into financial trouble. The focus on clear monthly payments also supports financial literacy and better budgeting.
Reverse mortgages are exempt from HOEPA coverage. These loans work differently than standard mortgages. Instead of making monthly payments, borrowers—usually seniors—borrow against the equity in their homes and repay the loan when the house is sold or they move out.
While HOEPA doesn’t apply, reverse mortgages still fall under other federal regulations, including TILA and RESPA. Lenders must still provide clear disclosures, and borrowers should complete reverse mortgage counseling with a HUD-approved agency.
To learn more about reverse mortgages, visit our Reverse Mortgage Counseling page.
HOEPA places clear limits on the types of fees that can be charged in a high-cost mortgage:
These rules help borrowers avoid fee pyramiding, which happens when new charges are added on top of old ones, making it hard to catch up on payments.
Lenders must ensure that all borrowers taking out high-cost loans receive certified homeownership counseling. This counseling must be:
The counseling agency will issue a written certificate stating the borrower completed the session. This certificate can be mailed, emailed, or faxed. Counseling can be done over the phone, but it must happen after the borrower receives their loan estimate or required disclosures.
Borrowers must be given a written list of 10 homeownership counseling organizations near their current zip code. The list must include:
For example, the list might include groups like NeighborWorks America, which offers free or low-cost counseling.
U.S. Department of Housing and Urban Development - Counseling Agency Locator
Learn more: Need help understanding your mortgage terms? Credit.org’s housing counselors can guide you.
The Dodd Frank Act expanded HOEPA’s scope and enforcement. In particular, it introduced:
The law also gave the Consumer Financial Protection Bureau (CFPB) more authority to enforce mortgage rules, publish updated coverage thresholds, and respond to consumer complaints.
This framework makes the mortgage market safer and more predictable for first-time homebuyers and repeat borrowers alike.
Lenders, brokers, real estate agents, and consumers all have a stake in HOEPA compliance. The law applies to anyone offering:
Even if a lender doesn’t usually offer high-cost loans, they may do so unintentionally. That’s why it’s crucial to calculate fees threshold, APR, and prepayment conditions accurately for every loan.
Consumers should also be alert. If you’re offered a loan with a high interest rate, balloons, or confusing terms, ask questions—and consider working with a housing counselor before signing.
HOEPA isn’t just a set of regulations—it’s a safety net for consumers navigating one of the biggest financial decisions of their lives. By clearly identifying high-cost loans and enforcing strict rules on disclosures, fees, and counseling, HOEPA supports responsible lending and protects long-term home ownership.
Before you accept any mortgage—especially one with high costs—make sure you:
Need help understanding your options? Visit Credit.org’s housing counseling services or call a HUD-approved counselor today.
