TIPS BULLETIN #13 13 Home Ownership and Equity Protection Act
TIPS BULLETIN #13-13
To:All Credit Unions
Subject: Summary of the Final Rule to Strengthen Consumer Protections for High-Cost Mortgages (HOEPA); Other Home Counseling Requirements (Regulation Z and Regulation X)
The material in this publication is provided for educational and informational purposes only, and does not constitute legal or financial advice. Use of any material or information in this publication should never be a substitute for seeking the advice of an attorney or a certified public accountant.
Background
The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as anamendment to the Truth in Lending Act (TILA) to address abusive practices in refinancing andhome-equity mortgage loans with high interest rates or high fees. Loans that meet HOEPA’s high-cost coverage tests are subject to special disclosure requirements and restrictions on loan terms, and borrowers in high-cost mortgages have enhanced remedies for violations of the law.
Summary
The CFPB has issued a final rule to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act’s amendments to the Truth in Lending Act and the Real Estate Settlement Procedures Act. The final rule amends Regulation Z (Truth in Lending) by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (HOEPA), revising and expanding the tests for coverage under HOEPA, and imposing additional restrictions on mortgages that are covered by HOEPA, including a pre-loan counseling requirement.
The final rule also amends Regulation Z and Regulation X (Real Estate Settlement Procedures Act) by imposing certain other requirements related to homeownership counseling, including a requirement that consumers receive information about homeownership counseling providers.
Revised HOEPA Coverage Tests
The final rule implements the Dodd-Frank Act’s revisions to HOEPA’s coverage tests by providing that a transaction is a high-cost mortgage if any of the following tests are met:
• The transaction’s annual percentage rate (APR) exceeds the applicable average prime offer rate by more than 6.5 percentage points for most first-lien mortgages, or by more than 8.5 percentage points for a first mortgage if the dwelling is personal property and the transaction is for less than $50,000;
• The transaction’s APR exceeds the applicable average prime offer rate by more than 8.5 percentage points for subordinate or junior mortgages;
• The transaction’s points and fees exceed five percent of the total transaction amount or, for loans below $20,000, the lesser of eight percent of the total transaction amount or $1,000 (with the dollar figures also adjusted annually for inflation); or
• The credit transaction documents permit the creditor to charge or collect a prepayment penalty more than 36 months after transaction closing or permit such fees or penalties to exceed, in the aggregate, more than two percent of the amount prepaid.
The final rule also provides guidance on how to apply the various coverage tests, such as how to determine the applicable average prime offer rate and how to calculate points and fees
Restrictions on Loan Terms
The rule implements new Dodd-Frank Act restrictions and requirements concerning loan terms and origination practices for high-cost mortgages. Some of these requirements include:
- Balloon payments are largely be banned, and creditors are prohibited from
charging prepayment penalties and financing points and fees.
- Late fees are restricted to four percent of the payment that is past due, fees for
providing payoff statements are restricted, and fees for loan modification or
loan deferrals are banned.
- Creditors originating high- cost open-end credit plans are required to assess consumers’ ability to repay the loans. (Creditors originating high-cost, closed-end mortgage loans already are required to assess consumers’ ability to repay.)
- Creditors and mortgage brokers are prohibited from recommending or
encouraging a consumer to default on a loan or debt to be refinanced by a high-cost
mortgage.
- Before making a high-cost mortgage, creditors are required to obtain
confirmation from a federally certified or approved homeownership counselor that the
consumer has received counseling on the advisability of the loan.
Other Counseling-Related Requirements
In addition to the changes discussed above, the new rule implements two Dodd-Frank Act homeownership counseling-related provisions that are not amendments to HOEPA. The rule amends Regulation X to implement a requirement under the Real Estate Settlement Procedures Act (RESPA) that credit unions and lenders provide a list of federally certified or approved homeownership counselors or organizations to consumers within three business days of applying for any mortgage loan. The CFPB expects to create a website portal to make it easy for lenders and consumers to obtain lists of homeownership counselors in their areas; however this portal is currently unavailable.
The rule amends Regulation Z to implement a requirement under TILA that creditors obtain written certification that a first-time borrower has received homeownership counseling from a federally certified or approved homeownership counselor or counseling organization before making a negative amortization loan to the borrower that is a closed-end secured by a dwelling. (A negative amortization loan is one in which the payment schedule can cause the loan’s principal balance to increase over time.)
Final Rule
CFPB High Cost Mortgage Rule What it Means for Consumers
CUNA’s Summaries of the CFPB’s Mortgage Lending Rules
Questions
If you have any questions regarding this information, please contact the Research and Information’s toll-free hotline at 877.243.5728.