Loan Auditors

The Home Ownership And Equity Protection Act, better known as HOEPA, is a law that was passed in 1994. The Act amends TILA, passed in 1968. It’s primary focus is on high rate, high fee loans. The Act offers protections to consumers of loans above and beyond what TILA provides protection for.

HOEPA covers the following types of loans:

• First lien loan, which is the original mortgage, where the APR exceeds 8% of the rates for Treasury securities of comparable maturity
• Second lien loan where the APR exceeds 10% of the rates of T-securities of comparable maturity
• The total fees and points paid by the borrower exceed $583 or 8% of the total loan amount, whichever is higher

In addition to certain disclosures required by HOEPA, if a lender performs any of the following practices then that lender is in violation of your loan and there could be penalties, which may include a refund on your loan or interest amount.

• Balloon payments
• Negative amortization
• Default interest rates higher than pre-default
• Repayment schedule which consolidates more than two periodic payments paid in advance from proceeds of the loan
• Interest rebates calculated by any method less favorable than the actuarial method
• Due-on-demand clause
• The majority of prepayment penalties
• Loan money without consideration of your ability to pay
• Refinance a HOEPA loan into another HOEPA within the first 12 months

As you can see, these are pretty specific prohibitions. If you have a client that you think may have a HOEPA case, the best thing to do is to order a forensic loan audit, which will uncover any documentation to prove a lender is in violation of HOEPA.