Asked by: Russ Frases
business and finance interest rates

What is considered a Hoepa loan?

Last Updated: 22nd January, 2020

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.

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Also question is, what loans are covered by Hoepa?

Under the 2013 HOEPA rule, most types of mortgage loans secured by a consumer's principal dwelling1, including purchase money mortgages, refinances, closed-end home-equity loans, and open-end credit plans (i.e., home equity lines of credit (HELOCs), are potentially subject to HOEPA coverage.

Secondly, what is considered a high cost loan? Under the new rule, a mortgage will be considered high-cost if it is: A first mortgage with an annual percentage rate (APR) that is more than 6.5 percentage points higher than the average prime offer rate. A loan of $20,000 or more with points and fees that exceed 5 percent of the loan amount.

Regarding this, what does Hoepa mean?

Home Ownership and Equity Protection Act

What is the main objective of Hoepa?

Consumer protection legislation designed to shield homeowners from abusive loan practices. It modified the Truth in Lending Act by establishing certain disclosure requirements and prohibiting home equity stripping. Its primary purpose was to stop unethical practices associated with high cost mortgages.

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What is a Section 32 mortgage loan?

The Home Ownership and Equity Protection Act (HOEPA) of 1994 defines high-cost mortgages. These also are known as Section 32 mortgages because Section 32 of Regulation Z of the federal Truth in Lending Act implements the law. It covers certain mortgage transactions that involve the borrower's primary residence.

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What does the Truth in Lending Act do?

The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.

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What is a predatory mortgage loan?

Predatory lending includes any unscrupulous actions carried out by a lender to entice, induce and assist a borrower in taking a loan that carries high fees, a high-interest rate, strips the borrower of equity, or places the borrower in a lower credit-rated loan to the benefit of the lender.

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What is an air Loan?

An air loan is a type of mortgage fraud that seeks to profit from unsuspecting lenders. A mortgage broker invents both a property and a borrower in order to earn false profits on completed loan transactions.

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What are QM loans?

A Qualified Mortgage (QM) is a defined class of mortgages that meet certain borrower and lender standards outlined in the Dodd-Frank regulation. The Ability-to-Repay rule outlines eight criteria the lender must use to determine if you can or cannot make mortgage payments.

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What is APR on a loan?

The annual percentage rate (APR) is the amount of interest on your total mortgage loan amount that you'll pay annually (averaged over the full term of the loan). A lower APR could translate to lower monthly mortgage payments. (You'll see APRs alongside interest rates in today's mortgage rates.)

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What is a Hoepa disclosure?

HOEPA Disclosure Requirements Checklist. May 31, 2014 Web SupportHOEPA. HOEPA, or the Home Ownership and Equity Protection Act, is designed to protect homeowners from predatory lenders and scammers who would seek to strip homes of their equity using abusive or deceptive lending practices.

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What is Reg Z section 32?

The Home Ownership and Equity Protection Act (HOEPA) of 1994 defines high-cost mortgages. These also are known as Section 32 mortgages because Section 32 of Regulation Z of the federal Truth in Lending Act implements the law. It covers certain mortgage transactions that involve the borrower's primary residence.

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What is the difference between a high cost mortgage and a higher priced mortgage?

In general, for a first-lien mortgage, a loan is “higher-priced” if its APR exceeds the APOR by 1.5 percent or more. On the other hand, a high-cost mortgage has the following three major criteria in its definition: The APR exceeds the APOR by more than 6.5 percent.

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What regulation is Homeowners Protection Act?

The Homeowners Protection Act is a law designed to reduce the unnecessary payment of private mortgage insurance (PMI) by homeowners who are no longer required to pay it. The Homeowners Protection Act mandates that lenders disclose certain information about PMI.

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Does Hoepa apply to purchases?

In 2010, the Dodd-Frank Act amended TILA by expanding the scope of HOEPA coverage to include purchase-money mortgages and open-end credit plans (i.e., home equity lines of credit, or HELOCs) and amended HOEPA's coverage tests.

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What are Trid regulations?

TRID is a series of guidelines which dictate what information mortgage lenders need to provide to borrowers and when they must provide it. TRID rules also regulate what fees lenders can charge and how these fees can change as the mortgage matures.

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Can an open end loan contain a prepayment penalty?

(iii) Under the terms of the loan contract or open-end credit agreement, the creditor can charge a prepayment penalty, as defined in paragraph (b)(6) of this section, more than 36 months after consummation or account opening, or prepayment penalties that can exceed, in total, more than 2 percent of the amount prepaid.

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How do I know if my loan is HPML?

For first liens, add 1.5 % to the listed index if the loan was locked in (or re-locked) during the week following the date. For example, if your APR is 7.09 and you subtract 1.5 your answer is 5.59. If your answer is higher than the posted index, which is currently 5.09 your loan is classified as an HPML.

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What does HPML stand for?

Higher Priced Mortgage Loans

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How is an APR calculated?

APR is calculated by multiplying the periodic interest rate by the number of periods in a year in which the periodic rate is applied. It does not indicate how many times the rate is applied to the balance. An annual percentage rate (APR) is the annual rate charged for borrowing or earned through an investment.

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What is allowed under Hoepa?

The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth in Lending Act (TILA) to address abusive practices in refinances and closed-end home equity loans with high interest rates or high fees.

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Does HPML apply to Helocs?

Therefore, if it is a HELOC, it's exempt from HPML as Dan said. Sec. 226.5b Requirements for home equity plans. "The requirements of this section apply to open-end credit plans secured by the consumer's dwelling."