HOEPA stands for Home Ownership and Equity Protection Act. Passed in 1994, the law extends the Truth In Lending Act passed in 1968. It deals with mortgage restrictions and requirements pertaining to high-cost loans. The law requires that HOEPA disclosures be given to the borrower at least three days prior to closing. Restrictions covered in the Act pertain to certain loan terms that are typically associated with abusive or predatory lending.
The following types of loans are covered under the HOEPA Law:
- APR on original mortgage is 8% points over comparable Treasury securities
- Or if the APR on the second mortgage is 10% or more over comparable Treasury securities
- The borrower’s total fees and points exceed $583 or 8% of the total loan amount, whichever is greater
That $583 is tied to the Consumer Price Index and established by the Federal Reserve Board annually so it’s only good for 2009. Next year the Board will adjust that figure.
The rules apply primarily to home equity installment loans or refinancing, which are typically high-cost loans.
HOEPA specifically prohibits balloon payments, negative amortization, default interest that exceeds pre-default rates, a variety of prepayment penalties, and several other controversial lender practices. You can learn more about HOEPA here.
To find out if a lender has violated the HOEPA Law, request a loan audit.
One of the most misunderstood aspects of real estate law is ECOA - Equal Credit Opportunity Act.
A lender is in violation of ECOA if any of the following is true:
- A loan was refused on the basis of race, color, religion, national origin, sex, marital status, or age
- A loan was refused because a part of the applicant’s income was derived from public assistance
- A loan was refused due to an applicant exercising a right in good faith under the Consumer Credit Protection Act
Of course, you have to understand that just because a loan was refused it doesn’t mean there is discrimination. If an applicant can’t pay for a loan then he or she will likely not win an ECOA case.
But, in certain situations, it’s OK for a creditor to inquire about marital status or age. Simply asking for this information does not constitute discrimination. But there has to be a real reason for asking. If you think that you may have been discriminated against, you can ask your loan auditor for a document review. The details will be in writing.
The purpose of truth in lending laws are pretty straightforward. From the Truth In Lending Act itself:
The purpose of the Truth In Lending Act is to require a meaningful disclosure of credit terms so that the borrower will be able to compare the terms of different loans available to him and to protect the consumer against unfair lending practices.
It is only right and fair that consumers of mortgage loans know in advance what they are getting into. Hidden fees and secret punches ought to be discouraged. But they happen anyway, even with strict laws.
One of the primary ingredients of the truth in lending laws in place is that lenders must disclose in writing the exact nature and amount of your fees, loan amount, and finance charges. Failure to do so can result in huge fines and financial remedies for the borrower.
The test for most truth in lending violations is “bona fide and reasonable”. That means market rate is a necessary consideration. It doesn’t mean that every lender must offer the market rate on loan amounts and charges. It does mean that huge gaps between the market rate and the actual charges could be terms for dispute or litigation. If that seems vague, it’s because it is. The law does allow for some flexibility in product offerings for the sake of competition, but it doesn’t allow for predatory or unscrupulous lender practices.
If you feel like you have a truth in lending claim then a loan audit can help you identify any violations that can give you legal recourse.
If you have an extremely high interest rate on your loan (and there are many reasons why you may, including but not limited to a bad credit score) then you need to become familiar with HOEPA law. This is an extension of TILA and affords extra protections to people with high interest rates or out-of-the-ordinary loan types.
By law your lender is required to send you a HOEPA notice three days prior to your closing date. The notice must tell you that you are not obligated to enter into the loan. The notice must also give you an accurate statement of APR, your monthly and balloon payment (if any) amounts, and if you have a variable rate loan your maximum payment amount. In other words, it should spell out what, exactly, you are getting into without all the legalese.
If you do not receive the HOPEA notice then you are automatically awarded a three year extension on the right of rescission. In addition, if you are due damages then you can be awarded the maximum provided under TILA plus additional amounts under HOEPA. Even then, you are still entitled to certain HOEPA claims beyond your three year extension date. It’s a powerful piece of legislation.
For more information on HOEPA and requesting a loan audit, contact US Lender Audit.
During the loan document review there are a number of documents that your loan auditor will be concerned with. Obviously, your loan closing paperwork is the first place to start and that’s where the majority of the information you’ll need for an equitable loan settlement will be found. But there are supporting documents that will be helpful. Some of those include:
- Good Faith Estimate
- Truth In Lending Statement
- Verification of Employment
- Verification of Deposits
- Verification of Mortgages
- Tax Returns
- Bank Statements
- W-2s
- Credit Reports
- Real Estate Appraisals
- Title Commitment
That’s just to name a few. There are over 30 different documents that your loan auditor may be concerned with to help you identify areas for renegotiation with your loan. Your lender will not help you find the information. That’s why it is important to have a good relationship with your loan auditor, who is a third-party individual or business with no interest in your loan. He is there to make sure you get a fair shake in the loan. Who else is doing it?
Get more information on the Loan Document Review.