What loans are affected by the Homeowners Equity Protection Act?


By Homeowners Equity Protection Act we are talking about the Home Ownership and Equity Protection Act (HOEPA) of 1994, set forth by the Federal Trade Commission (FTC).

Anytime you are thinking of accessing your home equity you need to be able to get the best deal possible for you, as a customer. This is what HOEPA does - sets the rules for higher percentage loans to avoid predatory lending terns for consumers.

HOEPA sets the guidelines for costlier home loans in first and second position.

The high-rate, high fee loans are usually refinances and home equity loans.

Mortgage loans to build and/or buy your home, HELOCs (revolving home equity lines of credit) and reverse mortgages are not covered by HOEPA.

The following types of loans are regulated by the Home Ownership and Equity Protection Act:

  • First mortgages whose APR exceeds the Treasury securities rates by 8 points and higher are covered by the Home Ownership and Equity Protection Act.
  • Second lien loans (standard 2nd mortgage loans, HELs and HELOCs) with APR 10 points higher than the rate of the Treasury securities.
  • The total fees and points paid by the consumer at closing exceed 8% of the loan amount, or an amount adjusted annually by the Federal Reserve Board.

Required HOEPA Disclosures

If your home loan falls in any one of these categories, the lender needs to provide 1) written notice that the loan can be canceled within 3 business days after closing; 2) loan papers should warn that you risk losing your home if you fail to make payments; 3) APR, loan amount, monthly payment amount, insurance premiums, and warning that rate and payment may go up with a variable rate loan.

HOEPA disclosures are only addition to the general TILA disclosures that have to be provided by the lender prior to closing of the loan. You are advised to read about Truth-in-Lending Act (TILA) disclosures in the corresponding section of MortgageQnA to ensure you are informed of your rights as a borrower.

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