Compliance Blog

Posted by Anthony Demangone

HOEPA.  Compliance deadline: October 1, 2009. 

Overview.  The mortgage crisis continues to throw curve balls at compliance officers.   Using its existing powers under the Home Ownership and Equity Protection Act (HOEPA), the Fed amended Regulation Z to create a slew of consumer protections in the area of mortgage lending.  And while many refer to this as the "higher priced mortgage" regulation, there are provisions that affect all dwelling-secured loans. 

First, there's one area of confusion that I want to clear up.  These regulations do create a category of loans, known as "higher-priced" loans.  Many of the restrictions within the new changes affect these loans.  (But not all.)  Regulation Z already has an existing category of HOEPA loans, known as "Section 32 loans."  Don't get these confused.  Here's how the Fed explains the distinction:

Distinguishing New Higher-Priced Loans From Existing HOEPA Loans
Many of the key provisions of the rule relates to higher-priced loans, a new category of mortgage loans within Regulation Z containing expanded consumer protections. This new loan category should not be confused with existing HOEPA loans, often referred to as “section 32” loans. Higher-priced loans have lower triggers than HOEPA loans and therefore encompass more loans. In addition, the rule for higher-priced loans applies to purchase money mortgages, which are excluded from HOEPA's coverage. But like HOEPA, the final rule for higher-priced loans excludes home equity lines of credit (HELOCs) and construction and reverse mortgage loans. The final rule also prohibits lenders from structuring a closed-end higher-priced loan as an open-end line of credit to evade the rule's protections. The rule for HOEPA loans remains in effect, albeit with some enhancements.

Next, I think it would be good to share some resources on the upcoming requirements.

• Here's a link to the actual regulation itself.
• Here's a link to a wonderful overview produced by the Philadelphia Fed.

• Here's a link to NAFCU's Final Regulation on the changes. (NAFCU Member Log-in needed.)

• In addition, this Wednesday, NAFCU will host a webcast that will address HOEPA requirements.

I'd read the overview first or our Regulatory Final.  This will give you a good foundation. Then you can dive into the rule itself for tough issues.  Now, let's get started.

The changes amend many sections of Regulation Z.  Today, we'll focus on section 226.1.  The section covers "Authority, purpose, coverage, organization, enforcement, and liability." Never overlook these sections when reviewing regs.  They can hold important information.

The HOEPA changes amend paragraph (d)(5) within 226.1 as follows:

Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Section 226.33 requires disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 226.34 prohibits specific acts and practices in connection with mortgage transactions that are subject to § 226.32. Section 226.35 prohibits specific acts and practices in connection with higher-priced mortgage loans, as defined in § 226.35(a). Section 226.36 prohibits specific acts and practices in connection with credit secured by a consumer’s principal dwelling.

The staff commentary for the section does the following:

• Makes it clear that the requirements apply to covered loans where applications are received on or after October 1, 2010.
• Makes it clear that the rules apply to refinances and assumptions considered new transactions under 226.20. 
• Notes that the rules for mandatory escrow for certain covered loans kicks in on April 1, 2010.  But mandatory escrow for covered manufactured loans kicks in October 1, 2010.  We'll tackle the escrow issue later.

• It also notes that for advertising, requirements apply to ads occurring on or after October 1, 2009.  But interestingly, it notes that a radio advertisement, for example, occur on the day it they are "first broadcast."  And that would make sense.  Perhaps advertisements are scheduled to air for months.  Forcing folks to plan ahead to make advertisements comply with future requirements would effectively move up the compliance date.

Tomorrow, we'll tackle 226.2, definitions.

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HUD has dropped its FAQ document that is designed to help compliance with the upcoming RESPA changes.  It was announced as HUD's "first release," so hopefully, there will be more.