If I were a banker and I told you that I was going to fix a violation so that you don’t have to worry about it, would you let me? The law is quite clear on this point. A lender cannot fix a violation in retrospect. And if you don’t believe me then at least take the word of a banker:
You can’t fix this type of violation. You have closed the loan and advanced the money so the best option is to document the error, train the loan officer(s) and move on. Do not rewrite the loan because the customer has the right to rescind this loan because of the HOEPA violation. If you rewrite the loan, you are only trying to take away their rights. Courts have shown this is not acceptable and you can’t take away someone’s rights.
This applies to HOEPA violations as well as RESPA and TILA violations. A bank or lending institution cannot fix a violation or rewrite the loan. You have a right to rescission under federal law and if the bank rewrites the loan without your knowledge or permission they are taking away your rights. If that happens to you then we recommend finding an attorney who specializes in real estate and mortgage law. They’ll be able to help you identify lender violations and other red flags.
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.
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.
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.