Mortgage Loans : HOEPA TILA

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32 clause aims at disclosing a balloon payment on the loan if any. Remember that Section 32 imposes restrictions on the amount of the balloon payment and that no balloon is allowed for loans with maturity less than 5 years. Regarding the disclosure, whatever disclosure shown in Section 32 Mortgages Disclosure is in addition to the standard required disclosures of RESPA and TILA. An ARM is allowed and the rescission is certainly not less than 3 years.

HOEPA designates protections (such as advertising limitations) specific to various mortgage types it defines by the level of the APR; however, many of these protections are the same for each defined mortgage type. The following protections apply to all loans secured by a consumer's principal dwelling, regardless of the loan's APR.

The broader category of "Higher-Priced Mortgages" that was created in 2008 and covers general subprime loans is known as Section 35.

Reverse Redlining refers to excessive unethical lending to a previously underserved population.

HOEPA

Section 32 primarily affects refinancing (first lien loans) and home equity installment loans (second mortgages). The rules do not cover loans to buy or to build a home, reverse mortgages or home equity lines of credit.

Subpart E includes coverage of: (a) HOEPA amendments (though not all amendments) (b) Requires certain disclosures for closed-end loans (1026.32 ) (c) Provides limitations for closed-end loans that have rates or fees above specified amounts (1026.33) (d) Prohibits specific acts and practices if the mortgage is subject to HOEPA (1026.4) (e) Higher-Priced Mortgages (f) Prohibits specific acts and practices for closed end higher-priced mortgages. (1026.35) (g) Prohibits specific acts and practices when extending credit secured by a dwelling. (1026.25)

TILA aims to prevent advertisements that only give a partial or rosy picture of the loan. Brokers should not provide consumers with any misleading comparisons such as misrepresenting government endorsements or claims of debt elimination, making misleading statements that ARM loans have fixed interest rates, comparing mortgages that have different risk profiles without explaining those risks in detail and representing only selected terms in the consumer's native language while stating other terms in English.

TILA = Regulation Z

Protects consumers against inaccurate and unfair credit billing and credit card practices; • Provides consumers with rescission rights; • Provides for rate caps on certain dwelling-secured loans; • Imposes limitations on home equity lines of credit and certain closed-end home mortgages; • Provides minimum standards for most dwelling-secured loans; and • Delineates and prohibits unfair or deceptive mortgage lending practices.

Overstatements are not violations. Understatements are a violation of over $100. The percentage rules apply to rescission rights. The disclosed finance charge and other disclosures affected by the disclosed finance charge (including the amount financed and the annual percentage rate) are considered accurate if the amount disclosed as the finance charge is either understated by no more than $100 or is greater than the amount required to be disclosed.

TILA start 1968

The amendment to TILA: HOEPA, which took place in 2002 covers only "higher-priced" refinance mortgages. These mortgages are also referred to as Section 32 mortgages.

Section 32 is the category which covers "high cost" refinance mortgages. Section 35 covers general subprime loans.

HELOCs are not covered in Section 35. The following transactions are exempt from the appraisal and escrow requirements: A reverse mortgage transaction, A transaction to finance the initial construction of a dwelling, A transaction originated by a Housing Finance Agency, where the Housing Finance Agency is the creditor for the transaction, A transaction originated pursuant to the United States Department of Agriculture's Rural Development Section 502 Direct Loan Program.

"TILA, as implemented by regulation Z, became effective in July of 1969. It is one of the most important US consumer protection laws with regard to borrowing. TILA laws and regulations are generally aimed at protecting consumers, borrowers and creditors."

HOEPA amendments after 2002 for Section 32 mortgages added refinancing limitations. Creditors may not refinance a High-Cost Mortgage into another High-Cost Mortgage within the first 12 months of origination, unless the new loan is in the borrower's best interest. The prohibition also applies to assignees holding or servicing the loan.

Okay how are you doing? Please do not be sobbing.

HOEPA requires that the creditor establish an escrow account for the payment of property taxes and homeowners insurance however the borrower may be offered to opt out of this requirement after five years.

A lender can comply with HOEPA by either assessing repayment ability using DTI or using income after the borrower paid the debt obligations if the term of the mortgage is equal to or exceeds 7 years. The debt amount used should be the largest payment required within the first 7 years of the mortgage.

TILA Reg. Z rules prohibit certain practices relating to loan originator compensation. The goal of these regulations is to protect consumers from unfair and abusive practices involving payments to loan originators in the mortgage market.

TILA rules are generally enforced by the Federal Trade Commission (FTC).

A loan is considered high-cost if the transaction’s annual percentage rate (APR) exceeds the Average Prime Offer Rate (APOR) for comparable transactions on that date more than:

§ 6.5 percentage points for first-lien transaction

§ 8.5 percentage points for first-lien that are for less than $50,000 & secured by personal property (i.e. houseboat, RVs)

§ 8.5 percentage points for junior-lien transactions

A loan is also determined to be high-cost by the amount of points & fees paid within the transaction, or by its prepayment penalties. The APOR is published at ffiec.gov/ratespread.

Section 35 loans are described as "Higher-priced mortgage loans," which are closed-end consumer credit transactions secured by the consumer's principle dwelling and which have an APR that exceeds the APOR (Average Prime Offer Rate) for a comparable transaction as of the date the interest rate is set. Specifically, by 2.5% or more for loans secured by a first lien with a principle obligation at consummation that exceeds the limit in effect as of the date the transaction's interest rate is set for the maximum principle obligation eligible for purchase by Freddie Mac.

Section 35 loans are described as "Higher-priced mortgage loans," which are closed-end consumer credit transactions secured by the consumer's principle dwelling and which have an APR that exceeds the APOR (Average Prime Offer Rate) for a comparable transaction as of the date the interest rate is set. Specifically, By 1.5% or more for loans secured by a first lien with a principle obligation at consummation that does not exceed the limit in effect as of the date the transaction's interest rate is set for the maximum principle obligation eligible for purchase by Freddie Mac.

HOEPA triggers are: (a) For a first lien loan, the APR exceeds the Average Prime Offer Rate by 6.5%; however, (b) For a first-lien transaction where the dwelling is personal property and the loan amount is less than $50,000 the trigger is when the APR exceeds the Average Prime Offer Rate by 8.5% percentage points:

APR Triggers: Effective January 10, 2014 the HOEPA triggers are:

(a) For a subordinate lien loan the APR exceeds the Average Prime Offer Rate by 8.5%; however, (b) Where the transaction's total points and fees exceed 5% of the total loan amount for a transaction with a loan amount of $20,000 or more or the lesser of 8% of the total loan amount or $1,000 for a transaction with a loan amount of less than $20,000.

§ 6.5 percentage points for first-lien transaction

§ 8.5 percentage points for first-lien that are for less than $50,000 & secured by personal property (i.e. houseboat, RVs)

§ 8.5 percentage points for junior-lien transactions

5 percent of the total loan amount for a loan greater than or equal to $20,000.

8 percent of the total loan amount or $1,000 (whichever is less) for loan amounts less than $20,000. The following items are included in calculating points and fees for HOEPA coverage:

§ Closed-end credit transactions

§ Open-end credit plans (HELOCs)

§ Participating fees payable at or before account opening

§ Fees charged to draw on their HELOCs

§ Point and fees calculation

§ Finance charge

Drag and drop the matching response to each question.

· A first lien that EXCEEDS Freddie Mac loan limits for purchase will meet the APR trigger for a Section 35 loan if the APR exceeds the Average Prime Offer Rate by: Select the option to match:2.50%

· 2.50%

· A first lien that is BELOW Freddie Mac loan limits for purchase will meet the APR trigger for a Section 35 loan if the APR exceeds the Average Prime Offer Rate by: Select the option to match:1.50%

· 1.50%

· A second lien that will meet the APR trigger for a Section 35 loan if the APR exceeds the Average Prime Offer Rate by: Select the option to match:3.50%

· 3.50%

· A first lien of $250,000 will meet the APR trigger for a High-Cost loan if the APR exceeds the Average Prime Offer Rate by: Select the option to match:6.50%

· 6.50%

· A second lien of $40,000 will meet the APR trigger for a High-Cost loan if the APR exceeds the Average Prime Offer Rate by: Select the option to match:8.50%

· 8.50%

Servicer limitations: Prohibits certain servicing practices, such as failing to credit a payment to a consumer's account when the servicer receives it, failing to provide a payoff statement within a reasonable period of time, and "pyramiding" late fees. As a note, HELOCs are excluded from this regulation.

The TILA/RESPA Loan Estimate protects the interest of the consumer by requiring correct and sufficient disclosure of lending terms and costs on most types of consumer credit, including mortgage loans, auto loans and credit card borrowing. Additionally, for certain home equity line of credits, adjustable-rate mortgages, mortgages with high interest rates and reverse mortgages, the government imposes additional limitations.

HOEPA - Home Ownership and Equity Protection Act (an amendment to TILA - enacted in 1994, significantly updated in 2008 and implemented by Reg Z). Provides special protections for consumers who obtain high-rate or high-fee mortgages such as prohibiting predatory lending and certain servicing practices. Advertising and ARM disclosure is covered in TILA but not HOEPA.

HOEPA was passed by Congress in 1994 during the midst of the rapid growth of subprime lending to help curb predatory lending.

Also known as "Redlining in Reverse." While Redlining refers to the practice of mortgage loan originators who avoid lending to certain segments of the population based on race, gender or other attributes, predatory lending refers to the opposite: excessive unethical lending to a previously underserved population.

Loan Flipping. Repeatedly refinancing, or â€˜flipping,' loans for the purpose of continuously collecting fees from homeowners.

No Balloon Payments are permitted for loans with a term of less than 5 years. Negative amortization and Default rates are prohibited.

Both types of loans have the same requirements with regards to the creditor ensuring that the borrower has the ability to repay. The regulations covering Section 32 loans include various prohibitions which include (1) balloon payments (except for construction bridge loans of less than one year which are excluded from the prohibitions); (2) Negative amortization; (3) default rate limitations; (4) prepayment penalties; (5) Due-On-Demand Clause; (6) Lending without considering repayment ability and income verification; (7) refinancing limitations; (8) Home Improvement proceeds; and (9) Regulation evasion.

The advertising limitations are key for preventing misleading or deceptive advertising practices, for example, using the term 'fixedâ€˜ to describe a rate that is not truly fixed. This also requires that all applicable rates or payments be disclosed in advertisements with the same prominence as the advertised introductory or 'teaser' rates.

TILA was enacted in May 1968 but has been amended. Two of those amendments include the Home Ownership and Equity Protection Act (HOEPA) which was enacted in 1994 and significantly updated in 2008 and the Mortgage Disclosure Improvement Act (MDIA) which was enacted in July 2008 and became effective in October 2009, and finally the TILA/RESPA Integrated Disclosure rule effective October 3, 2015.

Lenders must provide the borrowers with 2 copies of the "Notice of the Right to Rescind" form to every borrower who has the right to rescind, which will identify the date when the rescission period expires, the effect of the rescission and how the Borrowers can exercise their right to rescind.

Consumer Protection Act

CPA

Fair Credit Reporting Act

FCRA

Home Ownership and Equity Protection Act

HOEPA

Truth In Lending Act

TILA

during the midst of the rapid growth of subprime lending to help curb predatory lending.

Loan Flipping. Repeatedly refinancing, or flipping,' loans for the purpose of continuously collecting fees from homeowners.

HOEPA does not regulate mortgage servicers or appraisers

No Balloon Payments are permitted for loans with a term of less than 5 years. Negative amortization and Default rates are prohibited.

Federal law, balloon payments cannot occur earlier than 60 months. State laws may be more restrictive with balloon payments.

cannot be negative amortization with these mortgages

default interest rate cannot be greater than the initial rate on the promissory note. In addition, no more than two regular monthly periodic payments may be paid in advance from the loan proceeds at the closing.

exception, there cannot be prepayment penalties with Section 32 mortgages. Exceptions must meet three conditions:

The lender has verified the borrowers’ gross income through third-party sources, and the borrowers’ debt ratio after the new loan will be 50 percent or less.

The money used to prepay the mortgage does not come from and is not affiliated with the current lender. This would prohibit a prepayment penalty being charged if the current lender refinances the mortgage.

The prepayment penalty does not exceed the first five years of the mortgage.

Due-on-demand clauses also are restricted only if fraud

Cost-trigger test: divide the total prepaid finance charges by the amount financed on the truth-in-lending statement.

total loan amount under HOEPA is not the total loan shown on the promissory note; rather, it is the “amount financed” shown on the truth-in-lending statement.

Section 32 loan if certain fees and points, including the mortgage-broker fees, that borrowers pay at or before closing exceed $547 (2007 amount) or 8 percent of the total loan amount, whichever is larger.

The amendment to TILA: HOEPA, which took place in 2002 covers only "higher-priced" refinance mortgages. These mortgages are also referred to as Section 32 mortgages.

Section 32 is the category which covers "high cost" refinance mortgages. Section 35 covers general subprime loan

HOEPA Section 35 includes four (4) key protections: (a) "Loose" Lending; (b) Prepayment Penalties; (c) Escrow Creation; and (d) Regulation Evasion. ESPA allows the borrower to request to see the CD Settlement Statement one business day before the actual settlement. The settlement agent must then provide the borrower with a completed CD Settlement Statement based on information known to the agent at that time. At settlement, separate forms of a CD Settlement Statement may be prepared for the borrower and the seller. If the borrower or the seller does not attend the settlement, the CD should be mailed or delivered as soon as practicable after settlement.

The Closing Disclosure is a disclosure that is provided to the borrowers (and sellers, if applicable) by the settlement agent at the time of settlement. RESPA allows the borrower to request it one business day before the actual settlement. If requested by the borrower, the settlement agent must then provide a completed one based on information known to the agent at that time. If the borrower (or seller) does not attend the settlement, the Closing Disclosure should be mailed or delivered to them as soon as practicable after settlement.

Section 2609 of RESPA sets limits on the amounts that a lender may require a borrower to put into an escrow account for paying taxes, hazard insurance and other charges related to the property. The lender may require a cushion in the account, not to exceed an amount equal to 1/6 of the total disbursements for the year. The lender must perform an escrow account analysis once during the year and notify the borrowers of any shortage. Any surplus in the account of $50 or more must be returned to the borrower.

Adjustable-rate mortgage, or ARM, or variable-rate mortgage must be included before the word "fixed" in any advertisement covering ARMs.

Terms cannot use acronyms

Loan service providers must deliver an annual escrow statement to the borrowers once a year. This disclosure summarizes all monies coming in and out of the borrower's escrow account during the 12-month computation year and notifies the borrowers of any shortages or surpluses in the account. Also, if a loan servicer sells or assigns the servicing rights to the borrower's loan to another loan service, the loan servicer is required to deliver a Servicing Transfer Statement to the borrower 15 days before the effective date of the loan transfer.

MUST Keep Closing Statement Five years after consummation of the transaction.

HELOCs are not covered in Section 35.

The following transactions are exempt from the appraisal and escrow requirements: A reverse mortgage transaction, A transaction to finance the initial construction of a dwelling, A transaction originated by a Housing Finance Agency, where the Housing Finance Agency is the creditor for the transaction, A transaction originated pursuant to the United States Department of Agriculture's Rural Development Section 502 Direct Loan Program.

A mortgagee is also the lender or investor. The mortgagor signs the Mortgage and Note. Property owners are mortgagors. Mortgage loan originators may receive an origination fee or mortgage broker fee from a mortgagor, or the mortgagor may apply their YSP to total origination fees.

Section 32 No Balloon Payments are permitted for loans with a term of less than 5 years. Negative amortization and Default rates are prohibited.

A fee simple estate is the most complete ownership one can hold. The holder(s) of a fee simple estate has all rights of ownership including the right to transfer those rights to heirs.

Prepayment penalties are generally prohibited, but there are some exceptions. One exception is if the prepayment occurs within 2 years of closing.

Prepay fees are generally prohibited with the following exceptions: (a) The penalty will not apply after the two-year period following consummation (b) The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor (c) The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation.

Section 1508(d)(6) of the SAFE Act requires states to set minimum net worth or surety bond requirements or establish a recovery fund paid for by loan originators. The SAFE Act requires that individuals who originate loans within a particular state be licensed in that state. A person is barred from licensure if they have been convicted of any felony within the preceding seven years or convicted of other, more serious felonies at any time prior to applying for a license. Attorneys must be licensed as a mortgage loan originator if residential mortgage negotiations constitute a major part of their law practice.

RESPA prohibits a lender from charging excessive amounts for an escrow account. Each month, the lender may not require a borrower to pay into the escrow account more than the sum of a monthly payment average, or specifically, 1/12 of the total of all disbursements payable during the year. In addition, the lender may require a cushion in an account not to exceed 1/6 of the total disbursements for the year.

The rate changes are unknown by definition of an ARM. Various disclosures are required for variable-rate loans. Disclosure requirements include the interest rate cap, the index used, the margin charged, the effect of a rate increase, the frequency of rate changes, and the conditions of a rate increase. An important disclosure is the "Consumer Handbook on Adjustable Rate Mortgages booklet (the "CHARM"), which is prepared by the Board of Governors of the Federal Reserve System and the Office of Thrift Supervision. Also, the borrower needs to be given examples on how changes of interest rates will affect an original loan amount of $10,000 (see 1026.19 (b) through (d) for more details about what disclosure is needed for variable-rate loans).

LE helps shed light on the tradeoffs between the loan origination costs paid upfront versus on-going note rates. In the form, the lender displays different options for borrowers, such as a rate of 8%, 9% and 10%, and the corresponding upfront loan origination charges.

The amendment to TILA: HOEPA, which took place in 2002 covers only "higher-priced" refinance mortgages. These mortgages are also referred to as Section 32 mortgages.

Section 32 is the category which covers "high cost" refinance mortgages. Section 35 covers general subprime loans.

8/11/2021

HOEPA TILA