HOEPA Compliance for Mortgage Services

What is HOEPA?

The Home Ownership and Equity Protection Act (HOEPA) is intended to protect consumers from unfair and abusive practices in mortgage lending. HOEPA was first enacted in 1994 as an amendment to the Truth in Lending Act (TILA) and offers additional protection for high rate mortgages. It outlines the conditions under which a mortgage is considered to have high fees and/or high rates of interest. HOEPA mortgages are also called Section 32 mortgages as the loan rules are included in Section 32 of Regulation Z, which implements the TILA. The act has undergone several amendments over the years.

HOEPA Compliance

1. What Loans Are Covered Under HOEPA?

The law covers a loan if it satisfies the following conditions -

• In case of an original mortgage on a property, the Annual Percentage Rate (APR) exceeds the rates on Treasury securities of comparable maturity by more than 8 percentage points
• If it is a second mortgage, then the APR exceeds the rates on Treasury securities of comparable maturity by more than 10 percentage points
• The total points and fees to be paid by the consumer at or before the mortgage closing exceed the larger between $611 (for 2012) and 8% of the whole loan amount. Based on changes in the Consumer Price Index, this amount is annually adjusted by the Federal Reserve Board

Note - Premiums on credit insurance in case of credit transactions are also considered to be fees. The rules do not cover reverse mortgages or home equity lines of credit.

2. Disclosures Required For HOEPA

Loans meeting HOEPA's high-cost triggers have special disclosure requirements as well as restrictions on loan terms; borrowers have enhanced remedies for violations. HOEPA is now also expanded to apply more mortgage transactions, including home-equity lines of credit and purchase of money mortgage loans. Also included are prepayment penalty triggers and expanded protection for high-cost mortgages.

In addition to TILA disclosures, some of the disclosures required for being HOEPA compliant are -

• The borrower must receive disclosures a minimum of three days before loan finalization. The lender or bank must give the borrower a written notice which states that the loan need not be completed. This is even though the loan application may have been signed and the necessary disclosures received.
• The borrower has three business days to finalize whether or not to sign the loan agreement after receiving the Section 32 disclosures.
• The notice must inform the borrower that the lender will hold a mortgage on the home, and that the borrower may lose residence if payments are not made.
• The bank or lender must state the APR and the regular payment amount, as well as any balloon payments which are permitted by law. Credit insurance premiums must be included where applicable.
• The lender must state clearly any variable rates, and disclose the maximum monthly payment for variable rate loans.

These disclosures should be received no later than the loan closing date. In addition to this, there are a number of prohibited practices for HOEPA loans, such as balloon payments for loans less than five years, negative amortization, creditors issuing loans without verifying the borrower's ability to repay the loan, and a number of other such practices. Some of these have exceptions.

3. Penalties

The consumer or borrower can sue the lender for violating HOEPA requirements. In a successful lawsuit the borrower can recover statutory and actual damages, attorney fees and court costs. Violation of high-fee or high-cost requirements of TILA can let the consumer either rescind or cancel the loan (up to three years).

Outsource2india specializes in banker compliance requirements and makes sure that the banker compliance requirements are satisfied. Contact O2I for outsourcing compliance and become HOEPA compliant for loan processing, compliance consulting, mortgage compliance, and documentation.

Ensure HOEPA Compliance by Outsourcing Your Mortgage Requirements to Us

O2I is HOEPA compliant and has extensive expertise in Loan Processing, QC, Underwriting and Post-Closing Audits. The QC and Audit teams are thorough with different regulatory (State and Federal) requirements hence non-compliant loans are caught at an early stage of processing with the help of rigorous QC process. QC findings are sent to Loan Processors/Loan Officers for them to get required documents in place before the loan moves forward in the processing cycle. This ensures the borrowers don't get surprises just before the loan is about to close. With huge penalties involved, this also saves Lenders from unwanted trouble at a later stage.

Contact us for your any queries regarding mortgage loan processing.