The Home Ownership and Equity Protection Act (HOEPA) is an amendement of the Truth in Lending Act (TILA) intended to safeguard consumers from loans that are based on predatory practices. Particularly the law addresses “high-cost mortgages” and requires lenders to disclose clearly the amount of money the loan will cost in the long run as well as what happens to the lender when there is default on the loan.
The principal goal the primary goal of HOEPA is to offer relief as well as protection and assistance to homeowners with less-than-optimal credit scores. These are borrowers with low credit scores be more likely to be able to obtain a costly mortgage.
What’s a High Cost Loan?
To comprehend what a high-cost mortgage is, first you need to comprehend the concept of the average rate of prime. The prime offer rate (which we’ll abbreviate to APOR to make it easier) is set through the Federal Reserve Board. According to the Federal Reserve Board’s definition the APOR will be “an annual percent rate derived from the average rates of interest, points as well as other pricing conditions currently being offered to customers by a representative sample lenders for mortgage transactions that are low-risk in their pricing.” In essence, this is that APOR is the standard mortgage loan terms offered to buyers with a healthy credit.
If the mortgage you take on your new property is greater than 6.5 percentage points more that your APOR when you close this is thought to be a high-cost loan and you’re entitled to additional security under HOEPA.
For an additional mortgage (Home Equity Loan) and a first mortgage less than $50,000, if the annual interest is 8.5 percentage points higher than APOR and you are a homeowner, you will also be covered under HOEPA.
What protections does HOEPA Provide?
The intention for HOEPA is that homeowners who have poor credit can achieve their dream of owning a home without being put in a position to fail due to excessive interest rates, high charges, or a lack of financial education. In this spirit, HOEPA limits or bans some of the charges and fees the borrower with high costs might previously have had to face, such as:
- Costs for repaying the loan earlier
- For late fees greater that 4 percent or more of the monthly payment
- Charges for loan modifications for homeowners in need of help
- Charges for receiving a payoff statement
- Balloon payments at the end of the loan
Your lender has to be able to inform you before you sign the credit, of the fact that this loan you’re signing up for is a costly mortgage. They should provide you with details about the terms, costs and charges related to the loan.
High-Cost Mortgage Counseling
In addition, as part of HOEPA which covers all mortgages with high costs, customers must undergo homeownership counseling to make sure they’re prepared to take on their new financial obligations. MMI is pleased to offer the counseling.
In the event that you, or someone that you know is about to close on the costliest mortgage, they should complete your mandatory counseling session with MMI by calling the number 866-864-8991. The appointment lasts for about one hour and is designed to give you the necessary knowledge and guidance to effectively manage your mortgage or other loans.
One of the requirements for the program of counseling is a thorough review of the cost of loan related to the mortgage Therefore, you must have an Good Faith Estimate available.
