HOEPA Home Ownership and Equity Protection Act

The Federal Reserve approved HOEPA which amends Regulation Z Truth in Lending requirements.  The new rules take effect on October 1, 2009, except for the escrow requirement, which will take effect in 2010.  Regulation Z has protects people from unfair and deceptive predatory lending, but NEW to the mix are the advertising and disclosure requirements for a principal residence. 

The Board will continue to explore options to address unfair practices associated with originator compensation arrangements such as Yield Spread Premiums.  The Board will continue to have discussions with HUD to improve mortgage disclosures.  The new rules for apply ALL mortgage lenders not just those that answer to the Federal Reserve.

The first 4 rules apply only to "higher-priced loans."  The rules prohibit a lender from structuring a loan as a "closed-end mortgage" if it is really an "open-ended mortgage" to evade the new rules which do not apply to "open-ended mortgages."  Unfair practices will be addressed on a case-by-case basis.

1. Prepayment penalties are banned on loans if the payment can change in the initial four years.  Prepayment penalties are banned for 2 years on "higher-priced loans."  The Federal Reserve Board will publish an "Average Prime Offer Rate" established by Freddie Mac.  A "higher-priced mortgage loan" is a first mortgage that has an annual percentage rate (APR) that is 1.5 percentage points or more above the index, or 3.5 percentage points above the index if it is a subordinate mortgage.  Prepayment penalties may be included as a provision under certain conditions.
   
   
2. A lender can only make a loan if they know the borrower's income and assets will allow repayment of the highest scheduled payment during the first 7 years of the loan.  
   
   
3. A lender must verify the income and assets of a borrower.
   
   
4. All first-lien mortgage loans must have an escrow account for property taxes and homeowner's insurance.  Borrowers may cancel or opt out of the account after 12 months.
   
   
5. Lenders and mortgage brokers may not coerce a real estate appraiser to falsely state the value of a home.
   
   
6. Mortgage loans servicing companies are prohibited "pyramiding" late fees.  Mortgage loan servicing companies must credit loan payments to an account on the day they are received and provide a payoff statement within a "reasonable time period."  The Board withdrew a proposal that would require a lender to provide a fee schedule to consumers that requested one.  The Board also withdrew a proposal that would prohibit a lender from paying a mortgage broker more than the consumer had agreed to in advance.
   
    
7. A lender may NOT charge a mortgage applicant any fee, other than a credit report fee, until after the applicant has received the mortgage disclosures no later than 3 days after a customer applies for a loan.  The lender or mortgage broker must provide a Good Faith Estimate (GFE) of the loan costs and a schedule of payments no later than 3 days after the customer applies for a loan.  The fee must be "reasonable" or bear a reasonable relationship to the actual charge incurred by the creditor.  The fee must be a "bona fide" and reasonable amount.
   
   
8. Rates, monthly payments, and loan information must be printed in a "clear and conspicuous manner" on all mortgage advertising.  No deceptive or misleading advertising is permitted.  Advertising must be accurate and "balanced."  The Board banned these deceptive advertising practices:
    
   1.  
      1. Advertising that a rate is "fixed" when it is not.
      2. Advertising an "example" payment unless the ad states that the terms will apply during the life of the loan.
      3. Advertisements that say they are endorsed or sponsored by the state or federal government if they are not.
      4. Advertisements that have the name of the consumers loan company unless it specifies that it is not from that company.
      5. Bans advertising that a service is "debt elimination" if the service replaces one debt with another debt.
      6. Advertisements that a lender is a "counselor" for a consumer.
      7. Disclosing some information in a foreign language and some required information in English in an advertisement.  

You can find me in the Florida Keys and Key West at (305) 522-1398 or e-mail me at MayaMarieThomas@Hotmail.com.com.

Maya M. Thomas
REALTOR®
(305) 522-1398
MayaMarieThomas@Hotmail.com.com
www.ShowcasePortfolioProperties.com
www.myspace.com/topkeysrealtor