As a nonprofit HUD-approved housing counseling agency, credit.org has compiled important information you need to know about the new regulations. All the key compliance information you need to know is condensed into this short outline for quick reading.
The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth in Lending Act (TILA) to address abusive practices in refinancing and closed-end home equity loans with high interest rates or high fees. Since HOEPA’s enactment, refinances or home equity mortgage loans meeting any of HOEPA’s high-cost coverage tests have been subject to special disclosure requirements and restrictions on loan terms, and consumers with high-cost mortgages have had enhanced remedies for violations of the law. The 2013 HOEPA Rule also implements two additional Dodd-Frank counseling requirements that may apply to creditors regardless of whether or not they make high-cost mortgages. Specifically, these provisions require or encourage consumers to obtain homeownership counseling for other types of loans. Users of this guide should keep in mind that these homeownership counseling-related requirements are not amendments to HOEPA, but are separate amendments to the Real Estate Settlement Procedures Act’s (RESPA’s) Regulation X and the Truth in Lending Act’s (TILA’s) Regulation Z that apply to different types of transactions.
The 2013 HOEPA Rule applies to loan applications received on or after January 10, 2014. To comply with high-cost mortgage provisions of this rule you must:
Creditors must provide a list of homeownership counseling organizations within 3 days of application, and confirm that the consumer received homeownership counseling.
A loan is considered high-cost if the transaction’s annual percentage rate (APR) exceeds the Average Prime Offer Rate (APOR) for comparable transactions on that date more than:
A loan is also determined to be high-cost by the amount of points & fees paid within the transaction, or by its prepayment penalties. The APOR is published at ffiec.gov/ratespread.
Fix-rate transactions calculate the APR by using the rate in effect on the date you set the interest rate for the transaction. Variable-rate use the greater of the introductory interest rate or fully-index rate. Interest rates that may or will vary other than in accordance with an index (i.e. step-rate loan) use the maximum rate that the applicant may pay during the term of the transaction.
5 percent of the total loan amount for a loan greater than or equal to $20,000. 8 percent of the total loan amount or $1,000 (whichever is less) for loan amounts less than $20,000. The following items are included in calculating points and fees for HOEPA coverage:
Compensation can be paid by creditor to a mortgage broker, by consumer or creditor to a manufactured home retailer, or included in the sales price of a manufactured home through:
HOEPA prohibits prepayment penalties for high-cost mortgages. Added prepayment penalty coverage test:
Specific disclosure requirements include:
Requirements include ability-to-repay and pre-loan counseling. Restrictions apply to transaction terms, fees and practices.
Creditors and mortgage brokers are prohibited from recommending default on an existing loan to be refinanced by a high-cost mortgage. Creditors, servicers, and assignees cannot charge a fee to modify, defer, renew, extend, or amend a high-cost mortgage. Late fees are restricted to 4 percent of the past due payment and pyramiding of late fees is prohibited. Fees for the generation of payoff statements are generally banned, with limited exceptions. Points and fees cannot be financed, excluding finance closing charges. Cannot purposely structure a transaction to evade HOEPA coverage (i.e. splitting a loan into 2 loans to divide the loan fees to avoid the points and fees threshold).
Lender must receive written certification that the consumer has received homeownership counseling from an agency on the HUD-approved housing counseling list found at consumerfinance.gov. The homeownership counselor cannot be affiliated with or employed by the lender. Lenders cannot steer the consumer to a particular counseling agency. Lender must provide applicants a written list of 10 homeownership counseling organizations that are closest to the center of the zip code of the borrower's current address within 3 business days of receiving application. The homeowner counseling organization list must contain:
Counseling cannot begin until the consumer has received their RESPA loan estimate or the disclosures required, which will be verified with the counselor.
High-cost mortgage disclosures are required to be provided at least 3 business days before closing. Counseling may be provided via telephone. Counselor may send written certificate via mail, email, or facsimile so long as the certificate is in retainable form.
Lenders may pay the counseling fee, but cannot condition payment on the consumer getting a high-cost loan. Consumers may also pay the counseling fee.
If you have questions about HOEPA lender compliance, you can talk to our certified housing counselor for free.
