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InfoSight Highlight: Home Ownership and Equity Protection Act (HOEPA)
Friday, May 26, 2017 7:00 AM

The CFPB issued the 2013 HOEPA rule with expanded coverage to HELOCs. The rule applies to loans for which a credit union receives an application on or after Jan. 10, 2014.

The Home Ownership and Equity Protection Act of 1994 (HOEPA) amended the Truth in Lending Act (TILA) by requiring additional disclosures for consumer credit transactions that are secured by a principal dwelling (i.e., refinancing and home equity installment plans) that bear rates or fees above a certain percentage or amount, as well as reverse mortgages; and prohibiting specific acts and practices. The loans are called “Section 32 Mortgages,” as the rules for these loans are contained in Section 32 of Regulation Z, which implements the TILA. For purposes of the 2013 HOEPA rule, Section 32 loans are now defined as “high-cost” mortgages.

In general, HOEPA applies to the following types of consumer credit transactions that are secured by a consumer’s principal dwelling. These types of transactions must be tested against the HOEPA coverage tests. If they meet any of the coverage tests, they must comply with the restrictions on loan terms and other protections relating to high-cost mortgages. These transactions are:

  • Purchase-money mortgages
  • Refinances
  • Closed-end home equity loans
  • Open-end credit plans (HELOCs)

To determine if a loan is covered by HOEPA there are three separate coverage tests, based on:

  • APR Test
  • APR (as of the date the interest rate for the transaction is set or locked) exceeds the APOR for a comparable transaction on that date by more than:
  • 6.5 percent for first lien generally
  • 8.5 percent for first lien less than $50,000 and secured by personal property
  • 8.5 percent for subordinate lien transaction 

Points and Fees Test:

  • Exceeds 5 percent of the total loan amount for a loan greater than or equal to $20,579.
  • 8 percent of the total loan amount of $1,029 for a loan amount less than $20,579.

Prepayment Penalty Coverage Test:

  • Prepayment penalty is charged more than 36 months after consummation or account opening or;
  • Prepayment penalties that exceed more than 2 percent of the amount prepaid.

The following mortgage loans are exempt from HOEPA's high-cost mortgage loan requirements:

  • Reverse mortgages
  • Construction loans
  • Loans originated and directly financed by a Housing Finance Agency (HFA), as defined in 12 CFR 266.5
  • Loans originated under the U.S. Department of Agriculture’s (USDA’s) Rural Development Section 502 Direct Loan Program