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CFPB Issues a Proposal to Implement Recent Changes to HOEPA

During the week of July 9, the Consumer Financial Protection Bureau (CFPB) released a proposed rule to amend Regulation Z and Regulation X to implement the Dodd-Frank Act's amendments to TILA and RESPA regarding high-cost mortgage loans.  The Dodd-Frank Act amends TILA by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protection Act (HOEPA), by revising and expanding the triggers for coverage under HOEPA, and by imposing additional restrictions on HOEPA mortgages.  Such provisions include a pre-loan counseling requirement. Dodd-Frank also amends TILA and RESPA by imposing certain other requirements related to homeownership counseling.

The proposed rule would implement the expansion of HOEPA to cover most types of mortgage loans secured by a consumer's principal dwelling, including home-purchase mortgage loans, refinances, closed-end home-equity loans, and open-end home-equity lines of credit; though reverse mortgages would still be excluded.  The proposal also would implement various statutory definitions related to HOEPA's high-cost triggers and provide guidance on how to apply the triggers.

In addition, the proposal would implement new restrictions and requirements concerning loan terms and origination practices for high-cost mortgages, including:

  • Balloon payments would generally be prohibited, and creditors would be prohibited from charging prepayment penalties and financing points and fees;
  • Late fees would be restricted to 4% of the past-due payment;
  • Creditors originating open-end credit plans would be required to assess consumers' ability to repay; and
  • Before making a high-cost mortgage loan, creditors would need to obtain confirmation that the consumer has received counseling from a federally approved housing counselor on the advisability of the loan.

Credit Union National Association (CUNA) will soon be sending out a Regulatory Comment Call with a detailed summary of the proposal.  The CFPB is accepting public comments until September 7, 2012.