If you decide to take out a high-cost home mortgage—a kind of loan where the interest rate or fees exceed certain amounts—the Home Ownership and Equity Protection Act (HOEPA) provides you with protections against abusive lending practices by restricting loan terms and features. The law also provides enhanced remedies for violations in a private civil action.
Read on to learn more about HOEPA and the protections for borrowers considering getting this type of mortgage loan.
The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth in Lending Act (TILA). The goal of HOEPA was to stop abusive practices in refinances and closed-end home equity loans that had high interest rates or high fees.
Under HOEPA as originally passed, if a refinance or home equity mortgage loan met any of HOEPA's high-cost coverage tests, the lender was required to provide special disclosures to borrowers and was subject to various restrictions on the loan terms.
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), which amended TILA by expanding the coverage of HOEPA to include purchase-money mortgages (the mortgage you used to buy your home) and open-end credit plans, like HELOCs.
Additionally, the Dodd-Frank Act gave the Consumer Financial Protection Bureau (CFPB) the authority to adopt new rules to implement the new changes to HOEPA. In January 2013, the CFPB issued a rule (called the “2013 HOEPA Rule), which pertains to high-cost mortgages and counseling requirements.
HOEPA provides certain protections for borrowers if they take out a high-cost mortgage.
A loan is considered high-cost if the borrower's principal dwelling secures the loan and one of the following is true:
You can determine if a transaction is a high-cost mortgage based on its APR. A loan is considered a high-cost mortgage if its APR as of the date the interest rate is set exceeds the Average Prime Offer Rate (an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms) for a comparable transaction on that date by more than:
A mortgage is also considered to a high-cost mortgage if its points and fees exceed:
A transaction is a high-cost mortgage if there is a prepayment penalty:
(If the loan is indeed a high-cost mortgage, a prepayment penalty is not allowed.)
If the lender offers you a high-cost mortgage, it:
These protections don't apply if:
Before providing a high-cost mortgage, a lender must ensure that the borrower receives counseling on the advisability of such a mortgage from a HUD-approved counselor or a state housing finance authority.
In addition to the pre-loan counseling requirement for high-cost mortgages, the 2013 HOEPA Rule implemented two additional Dodd-Frank provisions related to homeownership counseling:
If your lender violated HOEPA, you might be entitled to monetary damages. For example, TILA's remedies in a civil action for a HOEPA violation can include a refund of the finance charges and fees paid, statutory damages, court costs, and attorneys' fees. To get more information about HOEPA or high-cost home loans, talk to a real estate attorney.
Also, be aware that additional steps are often required in the foreclosure of a high-cost home loan. To find out if your state has any laws that affect the foreclosure of a high-cost home loan, talk to a foreclosure lawyer.