HOEPA

THIS IS GUERILLA WARFARE

THIS IS NOT LEGAL ADVICE

HOEPA

Hoepa Clarification of HOEPA's APR Trigger

A loan is subject to the protections of the Home Ownership Equity Protection Act ("HOEPA") if, among other requirements, the APR is greater than 8 (for 1st liens) or 10 (jr. liens) percentage points above the yield on comparable Treasury securities.
Some states have lower thresholds, in Maryland for example it is 7% for a 1st lien.

Currently, creditors are permitted to use the results of Treasury auctions or the Federal Reserve Board's statistical release H-15, which is posted on the Board's Web site. A proposed revision to the Commentary to Regulation Z provides guidance on the use of H-15 when the loan maturity is comparable with more than one instrument listed in H-15. A creditor must use the yield corresponding to the constant maturity that is closest to the loan's maturity. If the loan's maturity is exactly halfway between the security maturities, the APR should be compared with the Treasury security having a lower yield. The proposed Commentary provides three examples: If H-15 contains a Treasury yield with constant maturities of 7 and 10 years then the APR for an 8 year mortgage loan is compared with the Treasury security having a 7 year maturity, and a 9 year mortgage loan is compared with the 10 year Treasury security. If a mortgage loan has a term of 15 years and the H-15 has a yield of 5.21 percent for constant maturities of 10 years and a yield of 6.33 percent for constant maturities of 20 years, the creditor should compare the APR for the 15 year mortgage loan with the yield for constant maturities of 10 years. If a mortgage loan has a term of 30 years and H-15 does not contain a yield for 30 year constant maturities, a creditor should compare the APRs on such loans with the yield on 20 year constant maturities and not with the average long term yield for maturities over 25 years.

Hoepa triggers are very important, many good legal protections and legal remedies kick in if your loan is considered a HOEPA loan. The point and fee triggers are included in this section. At first I thought my loan didn't qualify for HOEPA. Then when I began to go over the numbers on my Hud -1 I began to believe my loan would be considered a HOEPA loan. For starters I looked at the interest rate not just what they said it was at inception but over the course of the loan. My first tip off was I went to a site to do a quick check amortization. The figures just weren't coming out right. No matter what I put in I couldn't get to the figure they gave as an APR. Mine was structured as a pay option arm so it's complicated. To get the figure they said I would pay over the life of the loan or 2,146,673.53 my interest rate would have to be calculated using 9% plus the 3.55% margin they gave me or 12.55%. This makes it a HOEPA loan. For Maryland the law is 7% over the Treasury index and federal law is 8%. It is still unclear to me which law would prevail the state or Federal but it doesn't matter, my loan is still above or just barely within the limit in either case. Courts have been scrutinizing companies using figures just below the limit. The horrifying fact is that this doesn't even take into consideration that the indexes are rising which means I could actually be paying a lot more then this! It is impossible to figure that in as the indexes change monthly as theloan progresses. The figure is based only on the rate at the inception of this loan. It also does not take into consideration if the loan recasts before the five year mark due to a much higher rate of interest.

The Treasury rate figure they may have used for my loan was when I applied in Feb 2006 I can only guess -
Feb 2006 3.8883 + 8 = 11.8883% or
March 2006 4.0108 + 8 = 12.0108%
So if my rate was actually as I stated 12.55% then this is a HOEPA loan by federal or state standards.

It is still unclear to me what index they used. They never told me any index information when I took my loan. All I saw was 3.55% margin and an APR of 7.438%. Neither of which reflects the true cost of the loan. If they used the MTA which is what they put on my loan documents it would have been Feb 3.8883 or March 4.0108. My loan closed on April 3 so I don't see how they could use that index. On their web site they fail to give information on where to go for calculators, how to find indexes or to check them. It would have been as easy as inserting a link as I have done below. Obviously they do not want to reveal true indexes because they use false lower default indexes. They also do not want you to find amortisation calculators which explain the effect of true amortisation of the pay option arms. They give selected information based on presenting a "rosy" picture. Not a true accurate disclosure. See Pay Option Arms.

Here are some good web sites for calculating mortgages. They even have a calculator for option arms. Very few web sites do. You can find the index figures for your loan at this web site. http://mortgage-x.com/general/indexes/mta_history.asp Then you can find the amortization calculators and see what interest rate you would need to use to have the final outcome of total of payments. http://mortgage-x.com/calculators/default.htm In my opinion the lenders are using a artificial and false beginning interest rate and mysteriously calculated APR to avoid being considered a HOEPA loan and to deceive the borrower.

The second trigger is 8% of the loan in costs, points and broker fees. Well they seem to get around that by POC YSP's, which are lender's paid brokers fees. However you do pay for them in a higher interest rate and things like prepayment penalties, etc. Again a sneaky tactic to get around laws designed to protect us and otherwise deceive us as to the true nature of our loan. See YSP on this site for more info on that topic.

So on your loan documents look at these numbers very carefully in your loan to determine if your loan is a HOEPA loan. Because if it qualifies you are afforded additional claims and protections.

The Home Ownership and Equity Protection Act of 1994 (HOEPA)

a. In General -The Home Ownership and Equity Protection Act of 1994 (HOEPA or the Act) amended TILA by adding Section 129 of TILA, 15 U.S.C. § 1639, and has been implemented by Sections 226.31 and 226.32 of Regulation Z. 12 C.F.R. §§ 226.31 and 226.32. HOEPA was implemented to specifically curb the predatory lending practices of certain sub-prime lenders. Generally, the Act provides added protections to borrowers who obtain more high-cost loans in the sub-prime market.

HOEPA applies where "the total point and fees payable by the consumer at or before the closing will exceed the greater of -- (i) 8 percent of the total loan amount; or (ii) $400." 15 U.S.C. § 1602 (aa)(1)(B). Generally, points and fees include all items included in the finance charge, all compensation paid to mortgage brokers, and all enumerated section 1605(e) charges.

If the total points and fees exceed the greater of 8 percent or $400, section 1604 of the Act requires additional disclosures. These specific HOEPA disclosures are enumerated in section 1639(a)-(b) of TILA. Where inadequate disclosure occurs, the borrower has the right of rescission. 15 U.S.C. § 1635.

b. An Example of an Inadvertent Violation of HOEPA- As with TILA, the vast majority of HOEPA violations by title agents are technical, unintentional violations. Although a mortgage broker agreement between a borrower and a mortgage broker will sometimes reflect a greater amount, sub-prime lenders will sometimes reduce broker fee on a high cost, refinance loan so that the total points and fees do not exceed 8% of the loan. While a borrower may nevertheless agree to pay the mortgage broker the fee due him under the mortgage broker agreement from the loan proceeds, the payment of such a fee transforms the loan into a HOEPA loan. If the borrower later defaults and seeks the protection of the bankruptcy court, the borrower may seek to rescind the loan based on the lack of HOEPA disclosures.

Home Ownership and Equity Protection Act (HOEPA)
Purpose: “HOEPA, an amendment to TILA, was a congressional response to 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. H.R. Rep. No. 103 652, at 159 (1994).” Fluehmann v. Associates Financial Services, 2002 U.S. Dist. LEXIS 5755 (D. Mass. March 29, 2002).
Sources of law: 15 U.S.C. §§ 1602(aa), 1639, and 1641(d)(1). Federal Reserve Board Regulation Z (12 C.F.R. 226), particularly § 226.31 (“General Rules”) and § 226.32 (“Requirements for Certain Closed-End Home Mortgages”).

The Federal Reserve Board’s Official Staff Commentary on Regulation Z. Ford Motor Credit v. Milhollin, 444 U.S. 555, 565 (1980) (“Unless demonstrably irrational, Federal Reserve Board staff opinions construing the Act or Regulation should be dispositive”).

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. Government Securities @
www.federalreserve.gov/releases/H15/data.htm.)

“Points and fees” exceeding 8% of the “total loan amount.” 12 C.F.R. 226.32(a)(1)(ii).
“Points and fees” include: 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).
“Total loan amount” is defined as the amount financed (principal minus prepaid finance charges) minus any additional HOEPA fees not already included in the finance charge, e.g., a bona fide and reasonable appraisal fee paid to the lender.

Official Staff Commentary 12 C.F.R. 226.32(a)(1)(ii)-1. Lopez v. Delta Funding Corp., 1998 U.S. Dist. LEXIS 23318 (E.D.N.Y. Dec. 23, 1998).

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). Bryant v. Mortgage Capital Resource Corp., 2002 U.S. Dist. LEXIS1566, at **11-17 (N.D. Ga. Jan. 14 ,2002); Williams v. Gelt, 237 B.R. 590 (E.D. Pa. 1999), Newton v. United Companies Financial Corp., 24 F. Supp. 2d 444, 448-51 (E.D. Pa. 1998). 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.

As of October 1, 2002, the notice must also state the total amount borrowed. 66 Fed. Reg. 65,618 (2001).

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). Lopez v. Delta Funding Corp., 1998 U.S. Dist. LEXIS 23318 (E.D.N.Y. Dec. 23, 1998) (default interest rate); Newton v. United Companies Financial Corp., 24 F. Supp. 2d 444, 451-57 (E.D. Pa. 1998) (improvident lending).

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.; Bryant v. Mortgage Capital Resource Corp., 2002 U.S. Dist. LEXIS1566 (N.D. Ga. Jan. 14 ,2002); In re Barber, 266 B.R. 309 (Bankr. E.D. Pa. 2001); In re Jackson, 245 B.R. 23 (Bankr. E.D. Pa. 2000); In re Murray, 239 B.R. 728, 733 (Bankr. E.D. Pa. 1999).

In addition to regular TILA monetary damage remedies (see above), HOEPA violations give rise to “enhanced” monetary damages under 15 U.S.C. § 1640(a)(4), namely, all payments made by the borrower. In re Williams, 291 B.R. 636, 663-64 (Bankr. E.D. Pa. 2003). As with any TILA violation (see above), 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. Pulphus v. Sullivan, No. 02 C 5794, 2003 U.S. Dist. LEXIS 7080, at *64 n.11 (N.D. Ill. April 25, 2003); Dash v. Firstplus Home Loan Trust 1996-2, 248 F. Supp. 2d 489 (M.D.N.C. 2003); Cooper v. First Gov't Mortgage & Investors Corp., 238 F. Supp. 2d 50 (D.D.C. 2002); Bryant v. Mortgage Capital Resource Corp., 2002 U.S. Dist. LEXIS1566, at **17-22 (N.D. Ga. Jan. 14, 2002); Mason v. Fieldstone Mortgage Co., U.S. Dist. LEXIS 16415 (N.D. Ill. 2001); Vandenbroeck v. ContiMortgage Corp., 53 F.Supp. 965, 968 (W.D. Mich. 1999); In re Rodrigues, 278 B.R. 683 (Bankr. D.R.I. 2002); In re Jackson, 245 B.R. 23 (Bankr. E.D. Pa. 2000); In re Barber, 266 B.R. 309 (Bankr. E.D. Pa. 2001); In re Murray, 239 B.R. 728, 733 (Bankr. E.D. Pa. 1999).

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. Bank of New York v. Heath, 2001 WL 1771825, at *1 (Ill. Cir. Oct. 26, 2001).