Loans with high charges and high rates

If you are refinancing your mortgage or applying for a home equity loan, you may be covered by the Homeownership and Mortgage Amortization Protection Act (HOEPA). This law deals with certain deceptive and unfair practices of home equity loans and establishes requirements for certain loans with high rates and fees. These types of loans are also called “Section 32 Mortgages” since that is the name and number of the section of the law that establishes the corresponding regulations.

 

HOEPA loans

Mandatory informational data

Prohibited Terms and Conditions

If the provider breaks the law

HOEPA loans

A loan is covered by HOEPA if it meets the following criteria:

The annual percentage rate (APR) of the original mortgage on the property exceeds the rate of Treasury bonds with a comparable maturity date by more than 8 percentage points;

The annual percentage rate (APR) applicable to a second mortgage exceeds the rate of Treasury bonds with a comparable maturity date by more than 10 percentage points; or

The total charges and points payable by the borrower at the closing or before the closing of the loan agreement exceeds $ 625 or eight percent of the total loan amount, the highest value will be applied. (The $ 625 stipulation corresponds to 2013. The Consumer Financial Protection Bureau adjusts this amount annually according to changes in the Consumer Price Index.) Credit insurance premiums related to the transaction are considered charges.

The HOEPA law does not cover loans for the purchase or construction of your home, reverse mortgages, or lines of credit with mortgage collateral.

Mandatory informational data

If your loan meets the criteria of the HOEPA law mentioned above, the lender must provide you with several informative data within a minimum period of three business days prior to the loan closing date, namely:

A written notice stating that it is not necessary to finalize the loan, even if you have signed the loan application and received the mandatory information. After receiving the informative data stipulated in Section 32, you have three business days to decide if you want to sign the loan agreement.

The notice should warn you that since the lender will have a mortgage on your home, you can lose your residence and all the money you would have paid for it if you fail to meet your payments.

The APR rate, the amount of the regular payment (including any applicable global payment), and when it comes to refinancing a mortgage, you must be informed of the loan amount (and if the loan amount includes credit insurance premiums also you must declare it). For variable rate loans, the lender must inform you that there may be an increase in the monthly rate and payment, and you must also declare the maximum amount of the monthly payment.

Updated: November 21, 2019 — 12:03 pm

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