On July 9, the Consumer Financial Protection Bureau (CFPB) published a proposed rule to implement Dodd-Frank Wall Street Reform and Consumer Protection Act amendments to the Truth-in-Lending Act (TILA) that expand the types of mortgage loans that are subject to the Home Ownership and Equity Protection Act of 1994 (HOEPA), revise and expand the triggers for HOEPA coverage, and impose additional restrictions on HOEPA loans. In addition, this proposed rule implements Dodd-Frank amendments to TILA and the Real Estate Settlement Procedures Act (RESPA) that impose requirements governing homeownership counseling.
HOEPA
Sections 1431 through 1433 of Dodd-Frank significantly amended HOEPA to expand the types of loans that are subject to the coverage of HOEPA, to revise the triggers for HOEPA coverage, and to strengthen and expand the restrictions that HOEPA imposes on HOEPA mortgages.
►Scope of HOEPA coverage
Most types of mortgage loans, such as purchase money mortgage loans, refinances, closed-end home equity loans and open-end loans, secured by the consumer’s principal dwelling, would be potentially subject to HOEPA.
►Revised HOEPA thresholds
HOEPA would be triggered if:
♦A loan’s annual percentage rate (APR) exceeds the average prime offer rate (APOR) by 6.5 percent for most first-lien mortgages and 8.5 percent for subordinate lien mortgages;
♦A loan’s points and fees exceed five percent of the total transaction amount or a higher threshold if the loan amount is below $20,000; or
♦The creditor charges a prepayment penalty more than 36 months after loan consummation or account opening (for HELOCs) or penalties exceeding more than two percent of the amount prepaid.
►Restrictions on loan terms
Dodd-Frank restrictions and requirements concerning loan terms and origination practices for mortgage loans subject to HOEPA include:
♦Prohibiting balloon loans, prepayment penalties and the financing of points and fees.
♦Restricting late fees to four percent of the past due payment, restricting fees on payoff statements and prohibiting fees to modify/defer a loan.
♦Creditors originating HELOCs would be required to assess a consumer’s ability to repay.
♦Creditors and mortgage brokers would be prohibited from recommending to, or encouraging, a consumer to default on a loan in order to refinance into a high-cost mortgage.
♦Requiring creditors to obtain confirmation that the consumer received counseling on obtaining a HOEPA loan.
Homeownership counseling
The proposed rule would implement two Dodd-Frank provisions governing homeownership counseling that are unrelated to the HOEPA amendments.
►Regulation X
Lenders would be required to provide a list of federally-certified or approved homeownership counselors/organizations to consumers within three business days of their applying for any mortgage loan. This proposed rule would implement an amendment to RESPA made by Section 1450 of Dodd-Frank.
►Regulation Z
Creditors would be required to obtain confirmation that a first-time homebuyer has received homeownership counseling before making a negative amortization loan. This proposed rule would implement an amendment to TILA made by Sections 1433(e) and 1414 of Dodd-Frank.
Melanie A. Feliciano Esq. is DocMagic Inc.’s chief legal officer and currently serves as editor-in-chief of DocMagic’s electronic compliance newsletter, The Compliance Wizard. She received her JD from the Georgetown University Law Center, and is licensed in California and Texas. She may be reached by phone at (800) 649-1362 or e-mail
[email protected].
