Home Ownership & Equity Protection Act (HOEPA)

Posted by kevin on March 11, 2010 under Foreclosure Blog | Comments are off for this article

The Home Ownership and Equity Protection Act (“HOEPA”) is a part of TILA.  It was initially enacted in the 1990’s.  It applies to re-finances of first and second mortgages of the borrower’s principal dwelling.  It usually does not apply to lines of credit.  It does not apply to investment properties or second homes.

HOEPA is triggered by certain high interest loans where the APR exceeds by 8% the yield on a treasury security of comparable maturity (10% on secondary financing).  HOEPA is also triggered by the charging of excessive costs and fees at closing (more than 8% of the total loan amount).  These are commonly known as high cost loans.  Although the concept is pretty straightforward, the calculation of these triggers requires expertise and experience.

HOEPA requires TILA disclosures both prior to closing and at closing.  HOEPA prohibits for high cost loans certain prepayment penalties, increased interest rates upon default, certain balloon payments, and negative amortization.  In addition, HOEPA prohibits a pattern of granting mortgages based on the value of the collateral instead of the ability of the borrower to repay.

If your lender sold your loan to a third party (like a securitized trust), the new holder is also subject to claims under HOEPA.

HOEPA provides for statutory damages, actual damages, enhanced damages which include all interest and fees paid to date, and rescission.  As with TILA, the borrower may be entitled to be reimbursed legal fees and costs.