CFPB Issues Final Rule Containing HOEPA Changes
by: Marissa Aquila Blundell, Esq.
On January 10, 2013, the Consumer Financial Protection Bureau (CFPB) published the final version of a rule broadening and strengthening the Home Ownership and Equity Protections Act (HOEPA), as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
Specifically, one year from now on January 10, 2014, the “APR threshold” triggering HOEPA’s coverage for a first-lien mortgage will be lowered to 6.5 percentage points over the applicable average prime offer rate (APOR), from 8 percentage points currently. Likewise, the total “points and fees” threshold for loans greater than $20,000 will be lowered to 5 percent of the loan amount, from 8 percent of the loan amount currently.
The rule also establishes additional restrictions and creates additional creditor obligations for transactions subject to the HOEPA. Below are initial key points about this rule.
If a mortgage loan is secured by the borrower’s primary residence and if any one coverage threshold (the APR threshold, the “points and fees” threshold, or the prepayment penalty threshold) is surpassed, then HOEPA’s protections apply. Covered loans may be purchase-money mortgages, refinance transactions, home-equity loans, or home equity lines of credit (HELOCs). Only reverse mortgage transactions are exempt.
Additional restrictions for HOEPA loans prohibit: balloon payment features, unless a narrow exception applies; prepayment penalties; and the financing of points and fees. Additionally, creditors cannot issue a HELOC subject to HOEPA without verifying the borrower’s ability to repay the loan.
Creditors must obtain confirmation from an approved homeownership counselor that the borrower received homeownership counseling, before issuing any HOEPA loan.
Creditors and mortgage brokers cannot recommend or encourage a consumer to default on a loan or debt to be refinanced by a high-cost mortgage.
With this rule, the CFPB is also implementing borrower homeownership counseling requirements under the Truth-in-Lending Act (TILA) and the Real Estate Settlement and Procedures Act (RESPA). These requirements are not related to the HOEPA changes outlined above.
Lenders must provide consumers with a list of homeownership counseling organizations within 3 business days of receipt of a borrower’s application.
Creditors cannot issue a loan containing negative amortization features to a first-time borrower, without first obtaining confirmation that the borrower received homeownership counseling from an approved counselor or organization.
About the Author:
Marissa is Senior Vice President and General Counsel at Bankers Advisory and oversees the company’s quality control and compliance audit services. She is a graduate of Skidmore College and received her J.D. from the New England School of Law. She is admitted to the Massachusetts Bar. Marissa is the Co-chair of the Legislative Committee of the Massachusetts Mortgage Bankers Association. She can be reached at marissa@bankersadvisory.com
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