7/06/2017

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:


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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.
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6/29/2017

Fair Housing


The Fair Housing Act protects individuals who fall within one of the protected classes established under the law. The protected classes include:
  • Race
  • Color
  • Religion
  • Sex
  • Familial status
  • National origin
  • Handicap
  • Aggrieved persons have one year to file an action with HUD for violations of the Fair Housing Act.  When discriminatory acts or practices are ongoing, an aggrieved person must file a claim with HUD within one year of the last incident of discrimination (24 C.F.R. §103.35).  HUD’s Office of Fair Housing and Equal Opportunity will help aggrieved persons file their claims (24 C.F.R. §103.20).
    When HUD receives a complaint or helps an aggrieved person submit a complaint, it has 10 days from the date that the complaint is filed to serve a notice of the complaint on the respondent (24 C.F.R. §103.202).  After receiving a copy of the complaint, the respondent has 10 days to file an answer (24 C.F.R. §103.203).  HUD will provide notices to the aggrieved person and to the respondent of the right to resolve the alleged violations in federal court.  This notice will advise the parties that the statute of limitations for pursuing an action in court is two years from the date that the discriminatory practice occurred or two years after the last incident of an ongoing discriminatory practice occurred.

  • When neither the aggrieved person nor the respondent elects to resolve violations in court, HUD will pursue the process of conciliation by initiating an investigation. HUD must attempt to complete its investigation within 100 days of the date that a complaint is filed (24 C.F.R. §103.225). While conducting an investigation, HUD will seek voluntary cooperation from a respondent in providing access to records and documents and to individuals who may be able to provide information that is relevant to the complaint.  When necessary, HUD may subpoena documents and testimony, but only with the approval of HUD’s General Counsel (24 C.F.R. §103.215(b)).  

Investigations continue until HUD determines whether there is reasonable cause to believe that discrimination has occurred, or until the parties enter a written conciliation agreement. The goals of a conciliation agreement include:
  • Securing relief for the aggrieved persons, such as monetary and/or injunctive relief to eliminate discriminatory practices
  • Obtaining assurance that the respondent will eliminate any discriminatory practices, and
  • Vindicating the public interest through provisions that require the respondent to:
    • Participate in remedial efforts to eliminate discriminatory practices and prevent future discrimination, and
    • Comply with reporting requirements and monitoring activities
(24 C.F.R. §§103.310; 103.315; 103.320)
When an aggrieved party and a respondent enter a conciliation agreement, HUD has authority to monitor the efforts of the respondent to comply with the agreement. If HUD finds reasonable cause to believe that a respondent is not complying with the terms of a conciliation agreement, it must refer the matter to the Attorney General and recommend the filing of a civil action in federal court to enforce the agreement’s terms (24 C.F.R. §103.335).
HUD will issue a charge in cases in which conciliation is not achieved and its investigation shows reasonable cause to believe that a discriminatory housing practice occurred (24 C.F.R. §103.405(a)(3)).  A charge includes a written statement of the facts on which HUD is relying to find reasonable evidence of discrimination.  Within three business days of issuing a charge, HUD’s General Counsel will schedule a hearing with HUD’s administrative law judge and provide the charges and notifications regarding the hearing to the aggrieved person and the respondent.  HUD, the aggrieved person, or the respondent may then elect to pursue the claims in a judicial hearing in court instead of resolving them in an administrative hearing.  This decision must be made within 20 days of receipt of the charge (24 C.F.R. §103.410).
HUD’s regulations that outline the procedures for administrative hearings are extensive, and these rules cover both the pre-hearing and hearing processes. If a hearing is completed, HUD’s administrative law judge must issue an initial decision within 60 days of the end of the hearing. The decision will become final within 30 days after it is issued.
If an administrative law judge finds that a discriminatory housing practice, such as an unfair mortgage lending practice, has occurred or is about to occur, he/she can order the respondent to pay damages to the aggrieved person, issue other relief, such as injunction relief, and impose civil penalties.
HUD regulations authorize civil penalties of up to (per violation):
  • $16,000, if no prior administrative or civil hearings resulted in a finding that the respondent violated federal, state, or local fair lending laws
  • $42,500, if administrative or civil hearings conducted within the preceding five years resulted in a finding that the respondent committed one other violation of federal, state, or local fair lending laws
  • $70,000, if administrative or civil hearings conducted within the preceding seven years resulted in a finding that the respondent committed two or more violations of federal, state, or local fair lending laws

(24 C.F.R. §180.671(a))
An administrative law judge may impose separate penalties when a hearing results in a finding that there is more than one separate and distinct discriminatory housing practice (24 C.F.R. §180.671(e)). When a claim of discrimination under the Fair Housing Act is resolved through an administrative hearing, HUD has the authority to subpoena witnesses and documents. A person that willfully fails to respond to a subpoena may be subject to a criminal penalty of up to $100,000, imprisonment for up to one year, or both. These criminal penalties also apply if a person willfully:
  • Makes a false statement in a report or document that HUD subpoenas
  • Fails to produce accurate reports, documents, or other records, or
  • Mutilates or alters documentary evidence
  • At any time after its receipt of a complaint, if HUD determines that a civil rights matter demands “prompt judicial action,” it may ask the Attorney General to file a civil action. HUD will consult with the Civil Rights Division of the Department of Justice (DOJ) before determining that judicial action is needed (24 C.F.R. §103.500(a)). Reasons for HUD to make a referral to the DOJ may include the failure of a respondent to comply with a conciliation agreement (24 C.F.R. §103.335). The Attorney General also has authority to bring an enforcement action when there is “reasonable cause” to believe that an individual or entity is engaging in a “pattern or practice” of discrimination (42 U.S.C. §3614(a)).


  • For decades, courts disputed the legality of housing discrimination claims that were based on the theory of disparate impact.  Under the disparate impact theory, liability may result from a policy or practice that limits members of a protected class from access to mortgages or housing, even though the intention of the policy or practice is not to discriminate.  For example, if a lender has a policy of limiting its lending transactions to those involving loan amounts of $200,000 and above, this neutral policy has the effect of making home loans unavailable to borrowers who are shopping for lower-cost housing.  When these borrowers are minorities or members of other protected classes, the policy has an unintended discriminatory effect, which is illegal under the disparate impact theory.
    In 2013, HUD formally stated its view of the disparate impact theory when it adopted its Discriminatory Effects Rule.
    The HUD rule provides that a practice has a discriminatory effect when it “actually or predictably” impacts a group of people differently than another group and “…perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin” (24 C.F.R. §100.500(a)). The rule also states that Fair Housing Act violations may occur even if a practice is not motivated by an intent to discriminate.
    Predictably, opponents of the HUD rule argued that the language of the Fair Housing Act may not be interpreted to impose liability for practices that are not intended to discriminate. The language in the Fair Housing Act on which HUD relied for its interpretation of the law is a catchall provision which states that it is illegal to refuse to sell or rent housing, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status or national origin (42 U.S.C. §3604(a)).
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The catchall phrase “or otherwise make unavailable” has been the focus of countless arguments both for and against the disparate impact theory, including an argument that ultimately made its way to the Supreme Court. In July 2015, with a close vote of 5 to 4, the Court upheld the disparate impact theory. During the months that preceded the Court’s ruling, participants in the lending industry predicted that a decision to uphold the disparate impact theory would lead to more litigation under the Fair Housing Act and create a number of compliance challenges for mortgage lenders.
In particular, lenders expressed concern about the dual challenge of avoiding liability under the disparate impact theory while complying with the Ability to Repay (ATR) Rule and the Qualified Mortgage (QM) Rule. The ATR Rule requires a thorough evaluation of a loan applicant’s repayment ability and prohibits the extension of mortgage credit based on the ability of a consumer to make initial low payments based on an introductory interest rate that will adjust to a higher rate when the initial rate expires. The QM Rule gives lenders the incentive to make qualified mortgages by extending a presumption of compliance with the ATR Rule to those that make fully-amortizing mortgages with terms that do not exceed 30 years and that limit the extension of these loans to borrowers whose debt-to-income ratios do not exceed 43%.









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HMDA Quiz



If an applicant chooses not to provide demographic information for an application taken in person, the loan originator must:

Correct. If an applicant chooses not to provide demographic information for an application taken in person, the loan originator must note this fact on the form and then determine the applicant’s ethnicity, race, and sex based on visual observation or surname.


In 2018, a non-depository institution will be subject to HMDA’s data collection and reporting requirements if it had a home or branch office in an MSA on the preceding December 31 and:

Correct. If a non-depository institution meets the loan-volume threshold and had a home or branch office in an MSA on the preceding December 31, it will be subject to HMDA’s data collection and reporting requirements. In 2018, there will no longer be an asset-size threshold for non-depository institutions.




The practice of refusing to offer home loans to residents living in particular areas is known as:

Correct. The practice of refusing to offer home loans to residents living in particular areas is known as redlining.


The _______ is responsible for enforcing the Home Mortgage Disclosure Act and for writing implementing regulations, which are known as __________.

Correct. The CFPB is the agency that is responsible for implementing and enforcing HMDA, and the implementing regulations for HMDA are known as Regulation C.


Each of the following descriptions of ethnicity is found on the HMDA data collection form; however, if a loan applicant refuses to self-identify his/her ethnicity, a loan originator is limited to choosing which of the following aggregated descriptions based on the applicant’s appearance or surname?

Correct. When collecting data on the basis of visual observation or surname, loan originators must limit their selections to the aggregated categories. When an applicant elects not to self-identify his/her ethnicity, the loan originator is limited to reporting the applicant’s ethnicity as “Hispanic or Latino” or “Not Hispanic or Latino.”
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