Home Ownership and Equity Protection
Act (HOEPA)
The total points and fees payable exceed: - ✔️✔️-a transaction with a loan amount of
$20,000 or more, five percent of the total loan amount; or
-for a transaction with a loan amount of less than $20,000, the lesser of eight percent of
the total loan amount or $1,000
In a High Cost Loan, the creditor may CHARGE a - ✔️✔️-prepayment Penalty more
than 36 months AFTER consummation or account opening
-total prepayment penalties may exceed more than 2% of the amount prepaid.
For Example
In a High Cost Loan: - ✔️✔️a $16,500 first mortgage is a high-cost mortgage if the
APR exceeds the APOR by more than 6.5% or has points and fees that exceed the
lesser of 8% of the loan amount or $1,000.
In this case, the lender charges 6% in fees ($990), which is less than both the 8% and
the $1,000 thresholds. However, it is still considered to be a high-cost mortgage as it
meets the 6.5% threshold required under the HOEPA.
The Home Ownership and Equity Protection Act of 1994 (the HOEPA) amended the
TILA by adding - ✔️✔️disclosure requirements for high-rate, high-fee loans.
The loans covered under the HOEPA are HIGH-COST LOANS - ✔️✔️they may also be
called Section 32 loans.
A High-Cost Loan is defined as - ✔️✔️any consumer credit transaction secured by the
borrower's principal dwelling in which the APR exceeds the APOR BY MORE THEN:
-6.5 percent for a first-lien loan;
-8.5 percent for a first-lien transaction if the dwelling is personal property (e.g., a
manufactured home) and the loan amount is less than $50,000; or
-8.5 percent for a subordinate lien loan
High Cost Loan
, High-Cost-Loan Exemptions. The rules related to high cost mortgages do not apply to: -
✔️✔️-a reverse mortgage transaction;
-a transaction to finance the initial construction of a dwelling;
-a transaction originated by a housing finance agency -that is also the creditor for the
transaction; or
a transaction originated under the U.S. Department of Agriculture's Rural Development
Direct Loan Program.
A creditor making a high-cost loan must provide a borrower certain disclosures at least -
✔️✔️three business days prior to consummation.
A High-cost loan disclosures include: - ✔️✔️-The APR
-the amount of monthly payments and the amount of any balloon payments
-for a variable-rate transaction, a statement that the monthly interest rate and monthly
payments may go up
-for a closed-end transaction - the total amount the consumer will borrow and when the
amount borrowed includes finance charges allowed in the calculation of points and fees
in a high-cost mortgage
Disclosure NOTE: - ✔️✔️the disclosure of the amount borrowed is considered accurate
if it is not more than $100 above or below the amount required to be disclosed.
A high-cost loan may not provide for: 1 - ✔️✔️a payment schedule with regular periodic
payments that result in a balloon payment
-negative amortization.
-a payment schedule that consolidates more than two periodic payments and pays them
in advance from the proceeds.
-an increase in the interest rate after default.
-a refund calculated by a method less favorable than the actuarial method for rebates of
interest arising from a loan acceleration due to default. 1
A high-cost loan may not provide for (continued): 2 - ✔️✔️-a prepayment penalty for
longer than 36 months after consummation.
-a demand feature that allows the lender to terminate the loan in advance of the original
maturity date and demand repayment of the entire outstanding balance. 2
A lender extending mortgage credit subject to the HOEPA may not: - ✔️✔️pay a
contractor under a home improvement contract from the loan proceeds.
Act (HOEPA)
The total points and fees payable exceed: - ✔️✔️-a transaction with a loan amount of
$20,000 or more, five percent of the total loan amount; or
-for a transaction with a loan amount of less than $20,000, the lesser of eight percent of
the total loan amount or $1,000
In a High Cost Loan, the creditor may CHARGE a - ✔️✔️-prepayment Penalty more
than 36 months AFTER consummation or account opening
-total prepayment penalties may exceed more than 2% of the amount prepaid.
For Example
In a High Cost Loan: - ✔️✔️a $16,500 first mortgage is a high-cost mortgage if the
APR exceeds the APOR by more than 6.5% or has points and fees that exceed the
lesser of 8% of the loan amount or $1,000.
In this case, the lender charges 6% in fees ($990), which is less than both the 8% and
the $1,000 thresholds. However, it is still considered to be a high-cost mortgage as it
meets the 6.5% threshold required under the HOEPA.
The Home Ownership and Equity Protection Act of 1994 (the HOEPA) amended the
TILA by adding - ✔️✔️disclosure requirements for high-rate, high-fee loans.
The loans covered under the HOEPA are HIGH-COST LOANS - ✔️✔️they may also be
called Section 32 loans.
A High-Cost Loan is defined as - ✔️✔️any consumer credit transaction secured by the
borrower's principal dwelling in which the APR exceeds the APOR BY MORE THEN:
-6.5 percent for a first-lien loan;
-8.5 percent for a first-lien transaction if the dwelling is personal property (e.g., a
manufactured home) and the loan amount is less than $50,000; or
-8.5 percent for a subordinate lien loan
High Cost Loan
, High-Cost-Loan Exemptions. The rules related to high cost mortgages do not apply to: -
✔️✔️-a reverse mortgage transaction;
-a transaction to finance the initial construction of a dwelling;
-a transaction originated by a housing finance agency -that is also the creditor for the
transaction; or
a transaction originated under the U.S. Department of Agriculture's Rural Development
Direct Loan Program.
A creditor making a high-cost loan must provide a borrower certain disclosures at least -
✔️✔️three business days prior to consummation.
A High-cost loan disclosures include: - ✔️✔️-The APR
-the amount of monthly payments and the amount of any balloon payments
-for a variable-rate transaction, a statement that the monthly interest rate and monthly
payments may go up
-for a closed-end transaction - the total amount the consumer will borrow and when the
amount borrowed includes finance charges allowed in the calculation of points and fees
in a high-cost mortgage
Disclosure NOTE: - ✔️✔️the disclosure of the amount borrowed is considered accurate
if it is not more than $100 above or below the amount required to be disclosed.
A high-cost loan may not provide for: 1 - ✔️✔️a payment schedule with regular periodic
payments that result in a balloon payment
-negative amortization.
-a payment schedule that consolidates more than two periodic payments and pays them
in advance from the proceeds.
-an increase in the interest rate after default.
-a refund calculated by a method less favorable than the actuarial method for rebates of
interest arising from a loan acceleration due to default. 1
A high-cost loan may not provide for (continued): 2 - ✔️✔️-a prepayment penalty for
longer than 36 months after consummation.
-a demand feature that allows the lender to terminate the loan in advance of the original
maturity date and demand repayment of the entire outstanding balance. 2
A lender extending mortgage credit subject to the HOEPA may not: - ✔️✔️pay a
contractor under a home improvement contract from the loan proceeds.
