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2013 HOEPA/High-Cost Mortgage/Homeownership Counseling Rule

Effective January 10, 2014 Under the 2013 Home Ownership Equity Protection Act (HOEPA) Rule when a credit union originates a high-cost mortgage, they must give additional disclosures, avoid certain terms and ensure the members receive additional protections, including homeownership counseling. The Rule defines a high-cost mortgage, how to determine if a transaction is a high-cost mortgage, as well as the requirements for homeownership counseling implemented by the Dodd-Frank Act. 

How to determine a high-cost mortgage loan under HOEPA

There are three separate HOEPA coverage tests, based on:

  1. The transactions’ annual percentage rate (APR)
  2. The amount of points and fees paid in connection with the transaction
  3. The prepayment penalties you may charge under the loan or credit agreement


Transactions Exempt from HOEPA

  • Reverse mortgages
  • Construction loans
  • Loans originated and directly financed by a Housing Finance Agency
  • Loans originated under the U.S. Department of Agriculture’s (USDA)'s Rural Development Section 502 Direct Loan Program

Note: Some of these exemptions can have qualifications

Restrictions on Loan Terms for High-Cost mortgages 

  1. Balloon payments are generally banned for high cost mortgages and allowed in only three circumstances
  2. Prepayment penalties
  3. Due –on-Demand Features


Homeownership Counseling Requirements for High-Cost Mortgages

Prior to making a high-cost mortgage the credit union must receive written certification that the consumer has received homeownership counseling from a HUD-approved counselor or a state housing financing authority, if permitted by Housing And Urban Development (HUD). 
The member(s) will need to have received either the Real Estate Settlement Procedures Act (RESPA),  Government Sponsored Entities (GSE) or the disclosures required for a Home Equity Line of Credit (HELOC) before the first homeownership counseling session on the advisability of the mortgage.

Additional Homeownership Counseling Requirements

In addition to the pre-loan counseling requirement for high-cost mortgages, the 2013 HOEPA Rule implements two other Dodd-Frank Act counseling provisions:

  1. An amendment to Regulation Z Truth In Lending Act (TILA) requiring pre-loan counseling for negative-amortization loans made to first time borrowers
  2. An amendment to Regulation X (RESPA) that requires you to give federally-related loan applicants a list of housing counselors

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