Reverse Mortgage no monthly payment

A little bird says you need a reverse mortgage!
Enjoy the Good Life You deserve to Relax

A Better Way for Seniors to Buy a New Home
The Reverse Mortgage

No monthly payments as long as
 you live in the home

Use gift funds from family for your down payment
If you are downsizing and have equity you can use a reverse
No worries only pay the property taxes, fire insurance and HOA

You worked hard all your life to pay for your home.
Why not allow the home t pay you back?

Call to talk about using a reverse mortgage to purchase a house.

C G Caroline Gerardo Barbeau
NMLS 324982
Cell number 949- 784- 9699

949 South Coast Drive # 240
Costa Mesa California 92626

I live in San Juan Capistrano.
My Mom who is a Senior Citizen
lives in Laguna Niguel. 
Ask about reverse refinance which is helpful when 
one of the owner residents is over 62 years old.

A reverse is a government backed home loan 
that allows a homeowner access to the existing
equity in their home and convert it to cash
Choose a lump sum. line of credit or
combination of both.
Stay in your home and retain ownership of the house.
No payment is required until the borrower(s)
no longer use the house as their primary residence. 

REVERSE LOANS are Also called a HECM 
A HECM is a home-secured debt payable upon default or a maturity event.
This material has not been reviewed approved or issued by HUD FHA or 
any government agency.

Home loans for California! 

Eagle Home Mortgage of California - Company NMLS #252392. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act. RMLA #4130443; Certain restrictions apply. This is not a commitment to lend. Applicants must
qualify. Equal Housing Lender. Models/Lifestyles shown do not reflect any ethnic/racial preference. ©2017 Eagle Home Mortgage of California. Eagle Home Mortgage and the Eagle logo are U.S. registered service marks of Lennar Corporation and/or its subsidiaries.


Orange County Property Taxes Going UP ? Appeal

Orange County Property tax bills increasing two percent in 2018.
Above images- how you want them to see your home and
how Orange County Tax Assessor sees your house (castle)
This increase is unusual.
Homeowners have until November 30th to appeal.
Attached are the appeal instructions.  If you need help, call me and come in.
No charge, let’s see if rising property values help or not….

Article here from OC register

May also be found here:
or contact the clerk of your local board 

Filing application for reduced assessment doesn't automatically reduce your bill. You must continue to pay the taxes on the subject property on or before the applicable due date shown on the tax bill.

The appeals board has two years from the date an application is filed to hear and render a decision. If a reduction is granted, a proportionate refund of taxes paid will be made by the county.
Based on the evidence submitted at the hearing, the appeals board can increase, decrease, or not change an assessment. The decision of the appeals board upon this application is final; the appeals board may not reconsider or rehear any application. However, either the applicant or the assessor may bring timely action in superior court for review of an adverse action.

The appeals board can hear matters concerning an assessor’s allocation of exempt values. However, it cannot hear matters relating to a person’s or organization’s eligibility for a property tax exemption. Appeals regarding the denial of exemptions are under the jurisdiction of the assessor and/or the courts.
The following instructions apply to the corresponding sections on the application form. Please type or print in ink all information on the application form.
Enter the name and mailing address of the applicant as shown on the tax bill or notice. 

Provide the contact information for an agent, attorney, or relative if filing on behalf of the applicant. You are not required to have professional representation. If you have an agent to assist you, the applicant must complete the Agent Authorization portion of this form or attach an authorization which includes the information indicated below.
If the agent is not a California-licensed attorney or one of the relatives indicated in the certification section, you must complete this section, or an agent’s authorization may be attached to this application. An attached authorization must contain all of the following information.
• The date the authorization is executed.
• A statement that the agent is authorized to sign and file
applications in the calendar year of the application.
• The specific parcel(s) or assessment(s) covered by the
authorization, or a statement that the agent is authorized
to represent the applicant on all parcels and assessments
located within the county that the application is being
• The name, address, and telephone number of the agent.
• The applicant’s signature and title.
• A statement that the agent will provide the applicant with a
copy of the application.
Enter the appropriate number from your assessment notice or from your tax bill. If the property is personal property (e.g., an aircraft or boat), enter the account/tax bill number from your tax bill. Enter a brief description of the property location, such as street address, city, and zip code, sufficient to identify the property and assessment being appealed.
COLUMN A. Enter the amounts shown on your assessment notice or tax bill for the year being appealed.  If you are appealing a current year assessment (base year or decline in value) and have not received an assessment notice, or are unsure of the values to enter in this section, please contact the assessor’s office. If you are appealing a calamity reassessment, penalty assessment, or an assessment related to a change in ownership, new construction, roll change, or escape assessment, refer to the assessment notice you received.
COLUMN B. Enter your opinion of value for each of the applicable categories. If you do not state an opinion of value, it will result in the rejection of your application. Call me if you need an AVM or automated valuation and some comparables. You may attache a letter explaining condition of subject and improvements needed
COLUMN C.. Do not enter anything in this column.
Check only one item per application. Check the item that best describes the assessment you are appealing.
Regular Assessment filing dates are: (1) July 2 through September 15 for all property located in the county provided the county assessor sent a notice of assessed value by August 1 to all assessees with real property on the local roll; or (2) July 2 through November 30 for all property located in the county if the county assessor did not send notices of assessed values. Filing deadlines may be viewed at
Check the Regular Assessment box for:
• Decline in value appeals (value as of January 1 of current
• Change in ownership and new construction appeals
when the 60 day filing period for a supplemental
assessment appeal has been missed, provided the
following January 1 after change of ownership or new
construction has passed.
Supplemental Assessment filing dates are within 60 days after the mailing date printed on the supplemental notice or supplemental tax bill, or the postmark date of the notice or tax bill, whichever is later. Check the Supplemental Assessment box for:
• Change in ownership and new construction appeals filed
within 60 days of the mailing date printed on the
supplemental assessment notice or supplemental tax bill,
or the postmark date of the notice or tax bill, whichever is
Roll Change/Escape Assessment/Penalty Assessment filing dates are within 60 days after the mailing date printed on the assessment notice, or the postmark date of the notice, whichever is later.
Calamity Reassessment filing dates are within six months after the mailing of the assessment notice. Check the Roll Change/Escape Assessment/Calamity Reassessment box for:
• Roll corrections
• Escape assessments, including those discovered upon
• Penalty Assessments
• Property damaged by misfortune or calamity

Please check the item or items describing your reason(s) for filing this application. You may attach a brief explanation if necessary. Evidence must be presented at the hearing; do not attach hearing evidence to this application. You can add simple explanation and then details at hearing. They read what you file so make it be exact
A Decline in Value appeal means that you believe the market value of the property on January 1 of the current year is less than the assessed value for the property. If you select Decline in Value, be advised that the application will only be effective for the one year appealed. Subsequent
years will normally require additional filings during the regular assessment appeal filing period.

Only applications filed for penalties imposed by the assessor can be removed by the board. A penalty assessed by the tax collector cannot be removed by the appeals board; for example, late charges on payments.
For classification of property, indicate whether you are appealing only an item, category, or class of property. Please attach a separate sheet identifying what property will be the subject of this appeal. Allocation of value is the division of total value between various components, such as land and improvements.
Appeal after an Audit must include a complete description of each property being appealed, and the reason for the appeal. Contact the clerk to determine what documents must be submitted. If not timely submitted, it will result in the denial of your application.
Written findings of facts are explanations of the appeals board’s decision, and will be necessary if you intend to seek judicial review of an adverse appeals board decision. Findings of facts can only be requested if your appeal is heard before a board and if made in writing at any time prior to the commencement of the hearing. Failure to pay the required fees prior to the conclusion of the hearing will be deemed a waiver
of the request. Requests for a tape recording or transcript must be made no later than 60 days after the final determination by the appeals board. Contact the clerk to determine the appropriate fee; do not send payment with your application.
Indicate whether you want to designate this application as a claim for refund. If action in superior court is anticipated, designating this application as a claim for refund may affect the time period in which you can file suit. NOTE: If for any reason you decide to withdraw this application, that action will also constitute withdrawal of your claim for refund.
If your property is a single family dwelling, condominium, townhouse, multi-family dwelling of four or less units or the roll value of your appeal is less than $500,000, you may request a hearing officer consider your appeal. It should be noted that Findings of Facts are not available when your appeal is heard before a hearing officer. As well, when you request a hearing before a hearing officer, every attempt will be made to accommodate your request, but your request cannot be assured.
CERTIFICATION - Check the box that best describes your status as the person filing the application.
You may request an “exchange of information” between yourself and the assessor regardless of the assessed value of the property. If the assessed value of the property exceeds $100,000, the assessor may initiate an “exchange of information” This is a great idea. Ask for what information the county used to come up with value, see their cards. Such a request may be filed with this application or may be filed any time prior to 30 days before the commencement of the hearing on this application. The request must contain the basis of your opinion of value. Include comparable sales, cost, and income data where appropriate to support the value.
Property transfers may be inspected at the assessor’s office for a fee not to exceed $10. The list contains transfers that have occurred within the county over the last two years. Flipping, selling to relatives and entities will be reviewed. Warning...

By Mail: Orange County Assessment Appeals Board
P.O. Box 22023
Santa Ana, CA 92702-2023
In Person: Clerk of the Board Department
333. W. Santa Ana Blvd., Ste. 101
Santa Ana, CA 92701



HUD Disclosures FHA

HUD offers a model form for this disclosure on its website, but use of the model form is not mandatory.  The Informed Consumer Choice Disclosure is due three business days after a lender receives an application from a consumer for an FHA loan.  This disclosure is not required when a loan applicant is not eligible for a conventional mortgage.  Providing the disclosure is required when a lender determines that a loan applicant may be eligible for a conventional loan or when a lender is not certain that a loan applicant’s options are limited to FHA loan products.

Important Notice to Homebuyers, which is a two-page disclosure that provides loan applicants with:
  • A reminder that HUD does not regulate interest rates for FHA loans and that rates and other loan terms are negotiated between the lender and the loan applicant
  • Warnings about participating in loan fraud
  • A statement of the importance of reporting loan fraud
  • The number to use to contact HUD if the loan applicant believes that he/she has been subject to discrimination
  • A notice that the loan may be prepaid at any time without incurring a prepayment penalty
  • An explanation of the circumstances (such as refinances) in which a borrower may be entitled to a refund of a portion of an upfront mortgage insurance premium
  • An explanation of the length of time that monthly mortgage insurance premiums are due

  • a Lead Disclosure in transactions involving homes built prior to 1978
For Your Protection: Get a Home Inspection

Loan Estimate
TILA Disclosures
Closing Disclosure
Underwriting for an FHA loan usually begins with the use of an automated underwriting system (AUS), known as Technology Open to Approved Lenders (TOTAL). Lenders submit data to TOTAL, which produces a Mortgage Scorecard that evaluates the overall credit risk posed by the borrower 

A downgrade to manual underwriting automatically occurs when the following and other conditions exist:
  • Within the past 12 months, had:
    • Three or more mortgage payments that were 30 or more days late
    • One or more mortgage payments that were 60 or more days late, or
    • One mortgage payment that was more than 90 days late
  • $1,000 or more in disputed derogatory credit accounts
  • Received a bankruptcy discharge within two years of the assignment of an FHA case number
  • Transferred title to his/her property though a foreclosure sale, short sale, or the exchange of a deed-in-lieu of foreclosure within three years of the assignment of an FHA case number, or
  • Undisclosed mortgage debt
  • Non traditional credit ( has 3 other written references 12 months)
  • FHA underwriting may exceed 31/ 43 and go as high as 36/50 if there are compensation factors
  • Obtain funds required to make a down payment
  • Obtain funds for closing costs
  • Lower the DTI ratio by paying off existing debts with a loan
  • Down payment funds may also come from a gift that is fully documented.  Acceptable gift funds are those that come from family members, a close friend who has a clearly defined and documented interest in the borrower, a charitable organization, or a government agency that promotes home ownership for first-time home buyers or low- to moderate-income families.
moneygift.jpgDocumentation for a gift is essential, and it must include:
The donor’s name and contact information
The donor’s relationship to the borrower
The amount of the gift
A statement that repayment is not expected, and
A copy of the donor’s bank statement, showing withdrawal of the funds and a statement showing the deposit of them into the borrower’s account
The ability to show the transfer of funds from the gift donor to the recipient is essential because the HUD Handbook states that “Cash on Hand is not an acceptable source of donor gift funds

role of the FHA to endorse them.  Direct endorsement programs allow approved lenders to underwrite and close loans without prior approval from the FHA.  Within 60 days after the closing of a loan under a direct endorsement program, the lender must submit the closing package to HUD, where the agency will either endorse the case and issue a Mortgage Insurance Certificate (MIC) or issue a Notice of Return (NOR).  Lenders may attempt to resolve a Notice of Return by submitting additional information and requesting reconsideration for endorsement 

FHA loans 2017 Test Answers

FHA loan limits establish a maximum amount that consumers can borrow, and loan limits differ by area to reflect regional variations in housing prices.
Loan limits are established in the National Housing Act as the lesser of:
  • 115% of the median home price for an area, or
  • 150% of the conforming loan limit of $424,100
Loan limits are divided into:
  • The ceiling: 150% of the conforming loan limit = $636,150
  • The floor: 65% of the conforming loan limit = $275,665
For areas between the ceiling and floor, loan limits are computed by multiplying an area’s median home price by 115%.
The source of funds for FHA insurance is not taxpayer dollars, but insurance payments made by FHA borrowers.
UFMIP is due at closing and must be paid in full with cash or by financing the entire premium.
In all transactions, regardless of the borrower’s credit score or DTI ratio, the cost of UFMIP is 1.75% of the loan amount.
Reference to HUD’s MIP chart is required to calculate the cost of Annual MIP, which is based on:

  • Initial LTV of the loan
  • Loan term 
  • Base amount of the loan, which does not include the cost of financing UFMIP
FHA loans are qualified mortgages.  FHA will not insure loans with points and fees that exceed the 3% limit.  HUD does not limit the DTI ratio for FHA qualified mortgages to 43%.
HUD extends a conclusive presumption of compliance to loans with APRs that do not exceed the average prime offer rate by more than (Annual MIP + 1.15 percentage points).
HUD extends a rebuttable presumption of compliance to loans with APRs that exceed the average prime offer rate by more than (Annual MIP + 1.15 percentage points).

 Funds collected from the payment of UFMIPs and Annual MIPs are deposited into the Mutual Mortgage Insurance Fund (MMIF).

FHA will not insure loans with points and fees that exceed:
What is the UFMIP required for FHA borrowers?
Correct. The UFMIP required for FHA borrowers is 1.75% of the base loan amount.

origination of FHA loans begins with the completion of the Uniform Residential Loan Application (URLA) and the HUD/VA Addendum to Uniform Residential Loan Application, which is available through the HUD website.  addendum includes a Lender’s Certification, which requires lenders to verify certain information provided and steps taken during the application process. The addendum also includes a Borrower’s Certification, which requires borrowers to attest that information provided to the lender is accurate and complete

One of the advantages of FHA loans is that loan applicants can qualify for them with lower credit scores than those required for conventional mortgages.  In the conventional mortgage market, a consumer must have a credit score of at least 620 to be eligible for mortgage credit. FHA loans are available to consumers with credit scores in the 500s; loan applicants with credit scores of less than 500 are not eligible for an FHA loan.
HUD refers to the credit score used in the evaluation of an application for an FHA loan as a “minimum decision credit score” (MDCS). The MDCS refers to the credit score when only one score is reported, or if multiple reports provide the same score. When reported scores are different, the MDCS is:
  • The middle score if three scores are reported
  • The lowest score if two scores are reported
  • The lowest score if there are multiple applicants and they have different scores
  • With a credit score of 580 or above, a loan applicant is eligible for maximum financing, which is 96.5% of the Adjusted Value of the home that will secure the loan. For loan applicants with credit scores that are between 500 and 579, the loan-to-value ratio is limited to 90%.
  • HUD limits contributions by sellers and other parties with a financial interest in a transaction to 6% of the sales price of a home. When contributions exceed 6%, they are regarded as inducements to purchase, which will “…result in a dollar-for-dollar reduction to the purchase price when computing the Adjusted Value of the Property before applying the appropriate Loan-to-Value (LTV) percentage


HELOC Balloon Due?

Is your HELOC all due and payable? 
HELOC ballon due?
Are HELOC second payments now HUGE?
Let's fix the home loan.
Thirty Year Fixed rates are still low. 
Do you have a Chase, Bank of America, Wells Fargo or CITI second that now seems unfriendly?


MIP Plus 1.15 Percentage Points

The CFPB’s threshold for qualified mortgages that are subject to a rebuttable presumption of compliance is an APR that exceeds the APOR for a comparable transaction by 1.5 percentage points or more (for first-lien transactions).  FHA qualified mortgages are subject to a rebuttable presumption of compliance if the loan has an APR that exceeds the APOR by more than the sum of the Annual MIP plus 1.15 percentage points.   Therefore, the threshold that defines the difference between FHA loans that are subject to a conclusive or rebuttable presumption of compliance is higher than the threshold that the CFPB established.  As a result of this higher threshold, HUD’s qualified mortgage rule extends safe harbor qualified mortgage status to more loans.

FHA qualified mortgages are subject to a rebuttable presumption of compliance if the loan has an APR that exceeds the APOR by more than the sum of:
  1. X

The HUD rule exempts FHA reverse mortgages, which are known as home equity conversion mortgages (HECMs), from requirements to meet qualified mortgage standards. HUD’s rule also exempts transactions exempted by the CFPB. These exempt transactions include:
  • Bridge loans with terms of 12 months or less, including loans used to finance the purchase of a new dwelling while the borrower is trying to sell his/her current home
  • Bridge loans for the initial construction of a new dwelling
  • Construction phases of 12 months or less of a construction-to-permanent loan
  • Loans made by a housing finance agency (agencies that have authority to make loans pursuant to the Housing and Community Development Act of 1992)

Qualified Mortgages

With the publication of its Qualified Mortgage Rule (QM Rule) in January 2013, the CFPB established qualified mortgage standards for conventional mortgages.  Eleven months later, HUD finalized a rule for FHA qualified mortgages.  In the preamble to its rule, HUD stated that all Title II loans and other FHA loan products should be defined as qualified mortgages.  HUD based this statement on the fact that FHA loans do not include risky features such as negative amortization, and on its longstanding guidelines that have “…always required lenders to determine a borrower’s ability to repay a mortgage…” (78 Fed. Reg. 238, p. 75215). The CFPB and HUD rules for qualified mortgages both became effective in January 2014.

 HUD’s rule for FHA qualified mortgages must begin with a discussion of the CFPB’s Qualified Mortgage Rule because the rules are interrelated. Both rules are intended to give lenders the incentive to base lending decisions on “…a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms…” (15 U.S.C. §1639c(a)). Standards for determining repayment ability are set forth in the CFPB’s Ability to Repay Rule (ATR Rule), and HUD has incorporated these standards into its rule.

Even though it maintained that FHA loans were already in compliance with the general requirements for qualified mortgages, HUD issued a rule that more closely aligns its standards with those established by the CFPB. The HUD rule incorporates definitions, points and fees limitations, and standards for determining repayment ability that are found in the QM Rule (24 C.F.R. §201.7).
The CFPB’s QM Rule offers lenders a presumption of compliance with the ATR Rule when they make loans that meet particular product feature prerequisites and underwriting requirements. The product feature prerequisites for conventional qualified mortgages are:
  • A loan term that does not exceed 30 years
  • Points and fees that do not exceed 3% of the total loan amount
  • No periodic payments that increase the principal balance (i.e. no negative amortization)
  • No interest-only loans or other products that permit the deferral of payments of principal
  • No balloon payments (with some exceptions)
The underwriting requirements for conventional qualified mortgages include:

  • A maximum debt-to-income ratio of 43%
  • Verification of the borrower’s income and assets
  • Calculation of regular and substantially equal periodic payments that will repay the mortgage by the end of the loan term
  • Qualified mortgages may have either a conclusive or rebuttable presumption of compliance with the ATR Rule.  Those that have a conclusive presumption of compliance are known as “safe harbor qualified mortgages.” These are mortgages that are not higher-priced mortgage loans.  If a loan is a higher-priced mortgage, it is subject to a rebuttable presumption of compliance.
  • After completion of its rule making process to define FHA qualified mortgages, HUD finalized a rule that extends a conclusive presumption of compliance and safe harbor qualified mortgage status to any Title II FHA-insured single-family mortgage that meets the points and fees limitations of the CFPB’s QM Rule and that has an APR that does not exceed the average prime offer rate by more than the sum of the Annual MIP plus 1.15 percentage points for a first-lien transaction.
    The HUD rule extends a rebuttable presumption of compliance to FHA-insured single-family mortgages that:
    • Meet the points and fees limitations established under the CFPB’s QM Rule, and
    • Have an APR that exceeds the average prime offer rate by more than the sum of the MIP plus 1.15 percentage points
    • HUD has adopted the CFPB’s definition of “points and fees” that is found in Regulation Z, which defines the term to include:
      • Compensation paid by a consumer or by a creditor to a mortgage loan originator
      • Most items included in the finance charge
      • Real estate-related fees that are not reasonable, those for which the creditor receives compensation, or those that are paid to an affiliate of the creditor
      • Premiums paid at or prior to consummation for optional credit insurance products or insurance that names the creditor as the beneficiary
      • The maximum prepayment penalties that may be charged under the loan terms (note, however, that FHA loans may not legally include prepayment penalties)
      • HUD has stated that it will no longer insure single-family homes that have points and fees that exceed the CFPB’s limit for qualified mortgages (24 C.F.R. §203.19(b)(1)). As a result of this rule, single-family mortgages insured under Title II of the National Housing Act may not exceed the following amounts, which are adjusted annually for inflation:
        • 3% of the total loan amount for a loan of $100,000 or more
        • $3,000 for a loan of $60,000 or more but less than $100,000
        • 5% of the total loan amount for a loan of $20,000 or more but less than $60,000
        • $1,000 for a loan of $12,500 or more but less than $20,000
        • 8% of the total loan amount for a loan of less than $12,500
    • higher-priced mortgage loan, which is defined as a loan with an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction by 1.5 or more percentage points for a first-lien covered transaction 
    • Copyright © 2017. Caroline Gerardo. All Rights Reserved.


Mortgage Fraud

Penalties for violation of the Federal False Statements Act, which prohibits false statements to the government (including lending institutions), may include up to five years in prison, fines, or both. 18 U.S.C. §1014 prohibits the use of false statements on a loan application and the overvaluation of property in order to influence decisions made by a lending institution, and violations may result in imprisonment for up to 30 years, fines of up to $1 million, or both.  Loan originators can remind loan applicants of the gravity of providing false information by giving them a copy of the FBI’s Mortgage Fraud Warning. An Occupancy Certificate gives loan applicants the option to state whether the property securing a loan will be a primary residence, a second home that the applicant will occasionally occupy, or an investment property that the applicant will not occupy.

Fraud for profit is also referred to as “industry insider fraud” because it:
  1. X

Correct. “Fraud for profit” or “industry insider fraud” involves the use of inflated appraisals, falsified loan documents, stolen identities, fictitious loan applicants, and other illegal tactics to secure loan funds that the loan applicant has no intention of repaying.  In many cases, fraud for profit involves the conspiratorial efforts of industry insiders including mortgage loan originators, mortgage brokers, underwriters, loan processors, real estate agents, appraisers, and attorneys.

Cash-out purchase fraud is a scheme that Freddie Mac has cited as an emerging trend. [1]  These schemes involve the extension of an offer to purchase a home for an amount that is in excess of the list price.  Using an inflated appraisal, the borrower who is perpetrating the fraud obtains a mortgage for more than the home is worth.  After the closing takes place and the seller receives funds from the lender, he/she pays the fraudulent borrower the difference between the list price of the home and the amount shown on the mortgage.

[1] Freddie Mac. “Emerging Fraud Trends: Illegal Property Flipping With Cash-Out Purchases.”

Builder bailout schemes are also carried out by establishing shell companies that purchase new homes at inflated prices, or by attracting investors with fraudulent incentives, which may include promises to provide free property management services or to absorb any negative cash flow for some period of time. After the closing takes place, these promises are not honored.
Red flags for builder bailout schemes include:
  • Appraisals that solely rely on other homes in the same development for comparables
  • Strong sales in a development while the surrounding market is slow
  • Special incentives for home buyers and investors
  • An unclear source of funds for down payments
  • Affiliated parties in the transaction


HOEPA High Cost Mortgage Rules

The Home Ownership and Equity Protection Act (15 U.S.C. §1639, et seq.) regulates the origination of high-cost mortgages, which are loan options for subprime borrowers who are unable to qualify for mortgages in the prime market. Generally, subprime borrowers are those with blemished credit or without an established credit history. Since loans to subprime borrowers represent a greater default risk, lenders charge more for them. The additional earnings from higher lending fees and interest rates are intended to make up for the losses that lenders will experience if a subprime borrower is not able to maintain loan payments.

The CFPB is responsible for the implementation and enforcement of HOEPA.  HOEPA was adopted as an amendment to the Truth-in-Lending Act (TILA) and its implementing regulations, like the other TILA regulations, are known as Regulation Z

  • Is secured by the borrower’s principal dwelling, and
  • Meets at least one of the following thresholds:
    • An APR threshold, which differs for first-lien and subordinate-lien mortgages
    • A points and fees threshold, or
    • A prepayment penalty threshold
    • types of transactions that are subject to HOEPA today include:
      • Conventional loans
      • Non-conventional loans, including FHA loans and VA loans
      • Mortgages to purchase or construct a principal dwelling
      • Refinances secured by a principal dwelling, and
      • Open-end and closed-end home equity loans secured by a principal dwelling
      HOEPA does not apply to reverse mortgages, bridge loans that are used to finance the initial construction of a dwelling, and loans originated by a housing finance agency when the housing finance agency is the creditor. Although HOEPA covers FHA and VA loans, it does not apply to loans originated through the Department of Agriculture’s Rural Development Section 502 Direct Loan Program.

  • average prime offer rate is an annual percentage rate that reflects the average interest rates, loan fees, and loan terms for mortgages offered to well-qualified borrowers. The APOR is found online on the FFIEC website. Using the APOR as a benchmark, HOEPA’s APR threshold is triggered if:
    • The transaction is one for a first-lien mortgage and the APR is more than 6.5 percentage points above the APOR for a comparable transaction
    • The transaction is one for a subordinate-lien mortgage and the APR is more than 8.5 percentage points above the APOR for a comparable transaction
  • The points and fees threshold for high-cost mortgages varies based on the amount of the loan, and adjustments to this amount are made annually, based on the Consumer Price Index. Effective January 1, 2017, this threshold is triggered if the points and fees for a transaction exceed:
    • 5% of the total loan amount for loans of $20,579 or more, or
    • The lesser of 8% of the total loan amount or $1,029 for loans of less than $20,579
  • prepayment penalty threshold for high-cost mortgages is triggered if:
    • The loan includes a prepayment penalty provision that is in force for more than 36 months after consummation, or
    • The loan permits prepayment penalties that exceed 2% of the amount prepaid
  • Which of the following is not one of the thresholds used to identify a high-cost loan under HOEPA?
HOEPA and its implementing regulations include several disclosure requirements that are intended to alert consumers of the risks associated with high-cost mortgages. Loan originators must provide applicants with the following disclosure:
You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.
(12 C.F.R. §1026.32(c)(1))
This disclosure is due at least three business days prior to the consummation of a mortgage (15 U.S.C. §1639(b)(1)). The purpose of providing the disclosure prior to closing is to give loan applicants a three-day waiting period to consider whether it is best to proceed with the transaction. A borrower can waive the waiting period if he/she has determined that the extension of credit is immediately necessary to remedy a bona fide personal emergency (12 C.F.R.§1026.31(c)(1)(iii)).

 HOEPA include the following, which are intended to warn potential borrowers of specific loan terms that make high-cost mortgages a riskier and more expensive loan product:
  • APR disclosure: creditors must disclose the annual percentage rate. For high-cost mortgages, the APR is typically higher than it would be for a prime loan (12 C.F.R. §1026.32(c)(2)).
  • Notice of balloon payment: when balloon payments are not prohibited (e.g., they may be allowed for seasonal employees and in transactions for bridge loans), the lending agreement must state the existence of a balloon payment. The disclosure must also state the amount of the balloon payment (12 C.F.R. §1026.32(c)(3)).
  • Notice regarding regular payments: for closed-end loans, creditors must disclose the amount of periodic payments based on the amount borrowed (12 C.F.R. §1026.32(c)(3)).
  • Variable-rate disclosure: if the mortgage has an adjustable rate, the disclosure must include a statement that the monthly payment may increase, showing the maximum monthly payment, based on the maximum interest rate that may be required over the term of the loan (12 C.F.R. §1026.32(c)(4)).
  • Amount borrowed: in transactions for closed-end loans, there must be a statement of the total amount borrowed, as shown on the face amount of the promissory note. This disclosure is accurate if it is no more than $100 above or below the amount that must be disclosed 
  •  Notice to Assignee, which alerts assignees (those to whom a mortgage is assigned) and purchasers of mortgages that a loan is subject to HOEPA.  
What is the purpose of the Notice to Assignee required under HOEPA?

Under HOEPA, it is prohibited for a lender to:

  • Actual damages
  • A minimum recovery of $200 and a maximum of $2,000 for open-end loans
  • A minimum recovery of $400 and a maximum of $4,000 for closed-end loans, and
  • All finance charges and fees paid by the consumer

  • Which of the following requirements only applies to transactions for high-cost mortgages?
    1. X
    Correct. Pre-loan counseling is a requirement that only applies to high-cost mortgage loan transactions   One of the objectives of HOEPA is to address:

ECOA Mortgage Rules

Adoption of the Equal Credit Opportunity Act (15 U.S.C. §1691, et seq.) in 1974 was largely in response to discrimination against women in the financial marketplace.  Before ECOA made it illegal to discriminate against credit applicants on the basis of their gender, women were generally unable to secure any type of credit, including mortgage credit, unless they were co-applicants with their husbands.  Unmarried women were forced to ask their fathers or brothers to co-sign applications for mortgages and applications to finance the purchase of automobiles and other consumer products.
The CFPB is responsible for the implementation and enforcement of ECOA and its implementing regulations, which are known as Regulation B.  ECOA and Regulation B apply to business credit and to a wide range of credit transactions with consumers

The provisions of ECOA extend to “creditors,” which the law defines as individuals or entities that regularly extend credit or arrange for the extension of credit (15 U.S.C. §1691a(e)). Regulation B clarifies the definition of creditors, stating that the term also applies to:
  • Participants in the credit decision: A creditor not only includes the individual or institution that underwrites and funds a loan, but also includes:
    • Entities or individuals to whom a loan is assigned or transferred, when participating in the credit decision
    • A potential purchaser of a mortgage since it may influence a lender’s credit decision by indicating whether it will or will not agree to purchase the loan
  • Those referring applicants to creditors: Mortgage brokers and other individuals and entities that “regularly refer” loan applicants to creditors are also treated as creditors when they make these referrals in the ordinary course of business. In its Official Interpretations of the rule, the CFPB states that the term “creditor” also includes real estate brokers and home builders that refer homebuyers to particular creditors. The particular provisions of ECOA that apply to real estate brokers and builders are those that prohibit discriminatory practices, including the practice of discouraging particular consumers from applying for a mortgage.

As these provisions of Regulation B demonstrate, the term “creditor” has a broad definition and is not limited to individuals or entities that fund mortgages

 Protected classes under ECOA include:
  • Race
  • Color
  • Religion
  • National origin
  • Sex
  • Marital status
  • Age, as long as the loan applicant is old enough to enter a contract
  • Potential to have or raise children
  • Individuals that receive income from a public assistance program
  • Individuals that exercise their rights under the Consumer Credit Protection Act, which includes the Truth-in-Lending Act
  • ECOA applies to all types of mortgage transactions, including open-end and closed-end mortgages and those that are secured by first liens and subordinate liens.  Therefore, in virtually all transactions for home loans, creditors must make lending decisions based on the creditworthiness of a loan applicant and may not consider an applicant’s personal characteristics, his/her receipt of public assistance, or the fact that the applicant has pursued an action under the Consumer Credit Protection Act. There is one exception to the prohibition against considering the personal characteristics of a loan applicant, and this exception arises when a consumer applies for special purpose credit.  Special purpose credit includes mortgage assistance offered by a not-for-profit organization or through a state or federal program that has been established to promote home ownership for “…an economically disadvantaged class of persons” (12 C.F.R. §1002.8(a)(1)).
a not-for-profit organization offers special purpose credit to meet special social needs, it may consider personal characteristics of loan applicants if:
  • The program is based on a written plan to meet the credit needs of a particular “class of persons,” and
  • The program will extend credit to a class of persons that would not be able to qualify for credit or who would receive it under less favorable terms than those that the organization could offer to those meeting “customary standards of creditworthiness”
previously mentioned, ECOA prohibits creditors from discriminating against a loan applicant on the basis of his/her race, color, religion, national origin, sex, marital status, age, or because he/she receives public assistance or filed a claim under the Consumer Credit Protection Act (15 U.S.C. §1691(a); 12 C.F.R. §1002.4(a)). Treating an applicant differently from others on a prohibited basis is a practice that is referred to as disparate treatment.
Regulation B limits punitive damages to:
  • $10,000 for individual actions
  • The lesser of $500,000 or 1% of a creditor’s net worth in class actions
  • The statute of limitations for an individual to file a claim for a violation of ECOA is five years from the date on which the alleged violation occurred (12 C.F.R. §1002.16(b)(2)). Class actions are permitted and they are also subject to a five-year statute of limitations.
  • Violations of ECOA are subject to individual actions, class actions, and referrals to the Attorney General for a pattern or practice of discriminatory action. Violations may result in an award of actual damages, costs, and attorney’s fees. Punitive damages are limited to $10,000 for individual actions, and $500,000 or 1% of the creditor’s net worth in class actions.