Low-Cost E&O Insurance from OREP Library/Previous Editions
Explanation
of HOEPA Loan
Attribute to a
staffer for Congressman Miller
The term "predatory lending" encompasses a variety of practices. Oftentimes homeowners in certain communities, particularly the elderly and minorities, are targeted with offers of high-cost, home-secured credit. The loans carry high up-front fees and may be based on the homeowners’ equity in their homes, not their ability to make the scheduled payments. When homeowners have a problem repaying the debt, they are often encouraged to refinance the loan. Frequently this leads to another high-fee loan that provides little or no economic benefit to the borrower.
The Home Ownership and Equity Protection Act
(HOEPA), as implemented by Federal Reserve Regulation Z, Section 32, imposes
additional disclosure requirements on these types of loans and prohibits certain
acts and practices in connection with mortgage lending. HOEPA prohibits
extending credit without regard to a consumer’s repayment ability. HOEPA
identifies a high-cost mortgage loan through rate and fee triggers, and it
provides consumers entering into these transactions with special protections.
HOEPA applies to closed-end home-equity loans (excluding home-purchase loans)
bearing rates or fees above a specified percentage or amount. A loan is covered
by HOEPA if (1) the Annual Percentage Rate (APR) exceeds the rate for Treasury
securities with a comparable maturity by more than ten percentage points, or (2)
the points and fees paid by the consumer exceed the greater of eight percent of
the loan amount or $480 (for 2002, adjusted annually based on the Consumer Price
Index).
HOEPA restricts certain loan terms for high-cost loans because they are
associated with abusive lending practices. These terms include short-term
balloon notes, prepayment penalties, non-amortizing payment schedules, and
higher interest rates upon default.