New High Cost Loan Requirements Proposed

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The definition of loans considered to be high-cost is being expanded. In addition, lenders that make these loans are being subjected to new requirements.

High-cost mortgages are subject to the requirements of the Home Ownership and Equity Protection Act of 1994. Loans that are categorized as HOEPA require special disclosures and loan term restrictions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act amends the Truth-in-Lending Act to expand the types of loans that are subject to HOEPA by revising and expanding the triggers. The Dodd-Frank act also imposes loan counseling requirements.

The Consumer Financial Protection Bureau Wednesday issued a proposal to amend TILA and the Real Estate Settlement Procedures Act to implement the Dodd-Frank act’s TILA and RESPA amendments. TILA is implemented through Regulation Z.

Amendments proposed to Reg Z by the CFPB would make owner-occupied purchase mortgages, refinances, home-equity loans and home-equity lines of credit subject to HOEPA thresholds. Reverse mortgages would be excluded.

First liens with annual percentage rates that exceed prime offer rates by 6.5 percentage points would be considered HOEPA loans under the proposed rule. Subordinate liens would have a threshold of 8.5 percentage points over prime offer rates.

Loans of at least $20,000 with fees and points that exceed 5 percent of the total transaction amount would trigger HOEPA requirements. Mortgages that are less than $20,000 would have a higher threshold.

The proposed rule would provide guidance on how to apply the triggers. An example cited for adjustable-rate mortgages said the trigger would be based on the maximum margin permitted on the loan plus the index in effect at origination. Average HELOC prime rates would be based on comparable closed-end loans.

“The definition of ‘points and fees’ would conform closely to what has previously been proposed to implement requirements of the Dodd- Frank act concerning assessment of consumers’ ability to repay mortgage loans, such as by including loan originator compensation for closed-end mortgage loans,” the federal register filing stated.

The CFPB’s proposal would largely ban balloon payments, while lenders would “be prohibited from charging prepayment penalties and financing points and fees.” Late fees would be limited to 4 percent of the past-due payment, while payoff statement fees would be restricted and loan modification and deferral fees would be prohibited.

HELOC lenders would be required to assess the consumer’s ability to repay the loans.

Both creditors and mortgages brokers would be prohibited from recommending or encouraging a borrower to default. They would also be prohibited from recommending that a borrower refinance into a high-cost mortgages.

Borrowers would need complete counseling before closing on a high-cost loan. Lenders would have three business days from application to provide borrowers with a list of approved or certified counselors. Certification of counseling would be required on negative-amortization loans.

Comments are being accepted by the CFPB until Sept. 7.

The CFPB’s HOEPA proposed rule comes on the same day that the regulator, along with the Federal Housing Finance Agency and bank regulators, issued a proposed rule on appraisal requirements for higher-risk loans.

Mortgage Expert

Mortgage Daily Staff



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