Home Ownership and Equity
Protection Act (HOEPA)
HOEPA is an amendment to
TILA that deals with the substantive abuses of creditors offering
alternative, typically high interest rate, home loans to residents in
certain geographic areas. The statute was enacted to ensure that consumers
most vulnerable to abuse would be afforded a safety net without impeding the
flow of credit altogether.
Triggers for HOEPA
Coverage
APR more than 10% above
comparable Treasury security rate (8% on first-lien loans closing on or
after October 1, 2002) on the 15th day of the month before the lender
received the loan application. 12
C.F.R. 226.32(a)(1)(i);
66 Fed. Reg. 65,617 (2001). (For Treasury rates, see
U.S.
Goverment Securities);
"Points and fees"
exceeding 8% of the "total loan amount." 12
C.F.R. 226.32(a)(1)(ii).
Some examples of Points
are:
All prepaid finance
charges.
12 C.F.R. 226.32(b)(1)(i);
All compensation paid to
mortgage brokers.
12 C.F.R. 226.32(b)(1)(ii);
All items paid to the
lender or to a lender affiliate. 12
C.F.R. 226.32(b)(1)(iii);
Disclosure
Requirements
A special HOEPA
disclosure notice must be delivered to the consumer at least three business
days prior to the closing of the loan. 15
U.S.C. § 1639(b);
12 C.F.R. 226.31(c). A
signed statement to the effect that the consumer received the HOEPA notice
creates a rebuttable presumption only. 15
U.S.C. § 1635(c).
The notice must inform the consumer that he need not enter into the loan,
and that if he does enter the loan, he could lose his home and any money he
has put in it. 15
U.S.C. § 1639(a);
12 C.F.R. 226.32(c)(1).
The notice must also
include an accurate statement of APR, monthly payment and balloon payment
amount, and maximum payment amount on a variable-rate loan.
15
U.S.C. § 1639(a)(2);
12 C.F.R. 226.32(c)(2)-(4);
Official Staff Commentary
12 C.F.R. 226.32(c)(3)-2.
Prohibited Terms
The following terms are
prohibited (or limited) by the statute and Regulation Z: prepayment
penalties, default interest rate, balloon payments, negative amortization,
prepaid payments, improvident lending, direct payments to home improvement
contractors. 15
U.S.C. § 1639(c)-(h);
12 C.F.R. 226.32(d).
Remedies
Failure to deliver the
required HOEPA notice or inclusion of a prohibited term triggers an extended
(three-year) right of rescission (described above). 15
U.S.C. § 1639(j);
12 C.F.R. 226.23(a)(3) n.48.;
In addition to regular
TILA monetary damage remedies, HOEPA violations give rise to "enhanced"
monetary damages under
15
U.S.C. § 1640(a)(4),
namely, all payments made by the borrower.
Tip: Remember
that if you have a HOEPA rescission case, this effectively gives you double
deduction-- you get to deduct all payments made twice before getting to your
"HOEPA-adjusted" tender amount (once in calculating the TILA tender amount,
and once in calculating HOEPA damages). Also, if you're beyond three years
and can't rescind, you can still raise a HOEPA claim and deduct all payments
made in the nature of defensive recoupment.
As with any TILA
violation, the rescission remedy runs against any assignee of the loan. 15
U.S.C. § 1641(c). In
addition, where the loan documents demonstrate that the loan is covered by
HOEPA coverage, assignees "shall be subject to all claims and defenses with
respect to that mortgage that the consumer could assert against the
creditor." 15
U.S.C. § 1641(d)(1). This
provision mirrors the FTC Holder Rule and creates assignee liability for all
state and federal claims and defenses. For monetary damages claims under
TILA, it provides an exception to general rule that violations must appear
on the face of the documents.
Statute of Limitations
·
1 year for
affirmative claims. 15
U.S.C. § 1640(e);
·
3 years for
rescission. Beach
v. Ocwen,
523
U.S. 410 (1998);
·
Unlimited as a
defense to foreclosure in the nature of a recoupment or setoff.
