2013 Home Ownership and Equity Protection Act (HOEPA) Rule

Transcription

1 JANUARY 9, Hme Ownership and Equity Prtectin Act (HOEPA) Rule SMALL ENTITY COMPLIANCE GUIDE 1

2 Versin Lg The Bureau updates this guide n a peridic basis t reflect finalized clarificatins t the rule. Belw is a versin lg nting the histry f this dcument andits updates: Date Versin Rule Changes January 9/ Miscellaneus Administrative changes. December 3, Pints-and-Fees Calculatin: Inclusin f Lan Originatr Cmpensatin. The June 2013 ATR/QM Cncurent Final Rule and the Octber 2013 Final Rule mdified the requirements regarding the inclusin f lan riginatr cmpensatin in the pints-and-fees calculatin. (See What d I include when calculating pints and fees fr HOEPA cverage? n page 17.) These changes include treatment f cmpensatin paid by a cnsumer t a mrtgage brker; cmpensatin paid by a mrtgage brker t an emplyee f the mrtgage brker; cmpensatin paid by a creditr t its lan riginatr emplyees; and cmpensatin paid by a cnsumer r creditr t a manufactured hme retailer. (See Lan riginatr cmpensatin ( (b)(1)(ii) n page 20). Pints and Fees Calculatin: Charges Paid by Third Parties and the Creditr. The Octber 2013 Final Rule clarified the treatment f charges paid by third parties, including the seller, and charges paid by the creditr. (See Charges paid by third parties, Creditr-paid charges, Cmment 32(b)(1)-2, n page 22) Exceptin t Prhibitin n Balln Payments. The Octber 2013 Final Rule mdified the 2013 HOEPA rule t allw small creditrs, beynd thse small creditrs wh predminately perate in rural r underserved areas, t riginate balln payment high-cst mrtgages n r befre January 10, (See What are the restrictins n lan terms fr high-cst mrtgages? ( (d)) n page 24) Hmewnership Cunseling Requirements fr High-Cst Mrtgages. The 2013 HOEPA Rule prvides that hmewnership cunseling required prir t the issuance f a high-cst 2

3 mrtgage needs t ccur after the cnsumer receives either the required gd faith estimate disclsure under RESPA, r the disclsure fr hme equity lines f credit (HELOCs). The Octber 2013 Interim Final Rule mdified the 2013 HOEPA rule t require that the cnsumer receive the high-cst mrtgage disclsures under (c) befre cunseling, fr transactins where the ther disclsures are nt prvided. (See When shuld the cunseling take place fr highcst mrtgages n page 30.) List f hmewnership cunseling agencies. The 2013 HOEPA Rule requires that lenders prvide applicants fr federallyrelated mrtgage lans with a written list f hmewnership cunseling rganizatins within three business days after the lender receives the applicatin. The rule specifies tw cmpliance methds fr btaining the list: 1) using a tl develped and maintained by the Bureau n its website; and 2) using data made available by the Bureau r the U.S. Department f Husing and Urban Develpment (HUD), prvided that the data is used in accrdance with instructins prvided with the data. The Nvember 2013 Interpretive Rule issued by the Bureau describes instructins fr lenders t use in cmplying with the requirement t generate a list f hmewnership cunseling rganizatins by using data prvided by the Bureau r HUD. The Bureau als issued a bulletin discussing the Bureau s cmpliance expectatins with regard t this prvisin. (See List f hmewnership cunseling agencies (RESPA n page 30). May 2, Original Dcument 3

4 Table f Cntents Versin Lg Intrductin... 7 I. What is the purpse f this guide?... 8 II. Wh shuld read this guide?... 9 III. Wh can I cntact abut this guide r the 2013 HOEPA Rule? What is the 2013 HOEPA Rule and what des it require? I. When d I have t start fllwing the 2013 HOEPA Rule? II. What d I have t d t cmply with the high-cst mrtgage prvisins f this rule? ( , , and ) III. Are nly high-cst mrtgages affected by the 2013 HOEPA Rule? IV. Hw des this rule apply t HELOCs? What is a high-cst mrtgage? I. What types f transactins are subject t HOEPA cverage? ( (a)(1)) II. What types f transactins are exempt frm HOEPA cverage? ( (a)(2)) III. Are mrtgages n certain prperty types exempt frm HOEPA cverage?

5 IV. Cverage tests: Hw d I determine if a transactin is a high-cst mrtgage? ( (a)(1)) V. Hw d I calculate the APR fr HOEPA cverage? VI. What is the pints-and-fees cverage test?( (a)(1)(ii)) VII. What d I include when calculating pints and fees fr HOEPA cverage? ( (b)(1) and (2)) VIII. Hw des the 2013 HOEPA Rule regulate prepayment penalties? ( (a)(1)(iii) and 32(d)(6)) IX. What is cnsidered a prepayment penalty? ( (b)(6)(i) (clsed-end credit) and (b)(6)(ii) (HELOCs)) What are the restrictins n and additinal cnsumer prtectins fr highcst mrtgages? ( (d) and ) I. What special disclsures are required fr high-cst mrtgages? ( and (c)) II. What are the restrictins n lan terms fr high-cst mrtgages? ( (d)) III. What ther acts r practices are prhibited r restricted fr high-cst mrtgages? IV. Which existing HOEPA and Regulatin Z prtectins still apply t high-cst mrtgages? ( (d) and (a)(1) t (3)) V. What are the new ability-t-repay requirements fr high-cst mrtgages? ( (a)(4)) VI. What are the hmewnership cunseling requirements fr high-cst mrtgages? ( (a)(5)(i) t (vi)) VII. When shuld the cunseling take place fr high-cst mrtgages? VIII. Wh pays fr hmewnership cunseling fr high-cst mrtgages? ( (a)(5)(v)) What are the additinal hmewnership cunseling requirements? I. What hmewnership cunseling requirements apply t creditrs regardless f whether r nt they make high-cst mrtgages?

6 6. Practical implementatin and cmpliance issues Other resurces I. Where can I find a cpy f the 2013 HOEPA Rule and get mre infrmatin abut it?

7 1. Intrductin The Hme Ownership and Equity Prtectin Act (HOEPA) was enacted in 1994 as an amendment t the Truth in Lending Act (TILA) t address abusive practices in refinances and clsed-end hme equity lans with high interest rates r high fees. Since HOEPA s enactment, refinances r hme equity mrtgage lans meeting any f HOEPA s high-cst cverage tests have been subject t special disclsure requirements and restrictins n lan terms, and cnsumers with high-cst mrtgages have had enhanced remedies fr vilatins f the law. Histrically, these transactins have been referred t as HOEPA lans r Sectin 32 lans. This guide refers t such transactins as high-cst mrtgages, which is cnsistent with the terminlgy used in the Ddd-Frank Wall Street Refrm and Cnsumer Prtectin Act (the Ddd-Frank Act) and the 2013 HOEPA Rule. In 2010, the Ddd-Frank Act amended TILA by expanding the scpe f HOEPA cverage t include purchase-mney mrtgages and pen-end credit plans (i.e., hme equity lines f credit, r HELOCs) and amended HOEPA s cverage tests. Thrughut this guide, transactins that may ptentially be high-cst mrtgages and thus must be tested against HOEPA s cverage tests are referred t as transactins that are subject t HOEPA cverage. The Ddd-Frank Act als added new prtectins fr high-cst mrtgages, including a requirement that cnsumers receive hmewnership cunseling befre btaining a high-cst mrtgage. In January 2013, the Cnsumer Financial Prtectin Bureau issued a rule (referred t thrughut this guide as the 2013 HOEPA Rule ) that amends TILA s Regulatin Z t implement the Ddd-Frank Act s changes t HOEPA. The 2013 HOEPA Rule als implements tw additinal Ddd-Frank cunseling requirements that may apply t creditrs regardless f whether r nt they make high-cst mrtgages. Specifically, these prvisins require r encurage cnsumers t btain hmewnership cunseling fr ther types f lans. Users f this guide shuld keep in mind that these hmewnership cunseling-related requirements are nt amendments t HOEPA, but are separate amendments t the Real Estate Settlement Prcedures Act s (RESPA s) Regulatin X and the Truth in Lending Act s (TILA s) Regulatin Z that apply t different types f transactins. These requirements are cvered separately in Part 5 f this guide. 7

8 The Bureau s June 2013 ATR/QM Cncurrent Final Rule, Octber 2013 Final Rule, Octber 2013 Interim Final Rule, and Nvember 2013 Interpretive Rule amended and clarified certain prvisins f the January 2013 HOEPA rule. All requirements in the 2013 HOEPA Rule will apply t transactins fr which yu receive an applicatin n r after January 10, I. What is the purpse f this guide? The purpse f this guide is t prvide an easy-t-use summary f the Bureau s 2013 HOEPA Rule. This guide als highlights issues that businesses, in particular small businesses and thse that wrk with them, might find helpful t cnsider when implementing the rule. The Bureau anticipates that sme creditrs will have t make changes t their prcesses, underwriting guidelines, sftware, cntracts, r ther aspects f their business peratins in rder t cmply with this rule. Changes related t this rule may take careful planning, time, r resurces t implement. This guide will help yu identify and plan fr any necessary changes. The guide summarizes the 2013 HOEPA Rule, but it is nt a substitute fr the rule. Only the rule and its Official Interpretatins can prvide definitive infrmatin regarding its requirements. The discussins belw prvide citatins t the sectins f the rule n the subject being discussed. Keep in mind that the Official Interpretatins, which prvide detailed explanatins f many f the rule s requirements, are fund after the text f the rule and its appendices. The interpretatins are arranged by rule sectin and paragraph fr ease f use. The cmplete rule, as published n January 10, 2013 and the Official Interpretatins are available at Additinally, as nted, the CFPB issued several rules t amend and clarify prvisins in the January 2013 HOEPA Final Rule: the June 2013 ATR/QM Cncurrent Final Rule, the Octber 2013 Final Rule, the Octber 2013 Interim Final Rule, and the Nvember 2013 Interpretive Rule. The fcus f this guide is the 2013 HOEPA Rule. This guide des nt discuss ther federal r state laws that relate t the riginatin f high-cst mrtgages r t hmewnership cunseling, r ther rulemakings implementing Title XIV f the Ddd-Frank Act that take effect at the same time as the 2013 HOEPA Rule. At the end f this guide, there is mre infrmatin abut where t find the rule and a list f additinal resurces. 8

9 II. Wh shuld read this guide? If yur rganizatin riginates lans secured by a cnsumer s primary residence, yu may find Part 3 f this guide helpful. It will help yu determine whether the transactins yu riginate are cvered by the high-cst mrtgage prvisins f the 2013 HOEPA Rule, and if s, what yur cmpliance bligatins are. If yur rganizatin riginates federally-related mrtgage lans r makes negative-amrtizatin lans t first-time brrwers, yu may find Part 5 f this guide helpful. Part 5 will help yu determine when yu need t prvide mrtgage applicants with a list f hmewnership cunselrs, and whether yu need t cnfirm that a first-time brrwer has received pre-lan cunseling. III. Wh can I cntact abut this guide r the 2013 HOEPA Rule? If, after reviewing this guide and the regulatin(s) and cmmentary it addresses, yu have a questin regarding regulatry interpretatin, please CFPB_reginquiries@cfpb.gv with yur specific questin, including reference t the applicable regulatin sectin(s). If yu d nt have access t the internet, yu may leave this infrmatin in a vic at cmments abut the guide t CFPB_MrtgageRulesImplementatin@cfpb.gv. Yur feedback is crucial t making sure the guide is as helpful as pssible. The Bureau appreciates hearing yur suggestins fr imprvements and yur thughts n the guide s usefulness and readability. The Bureau is particularly interested in feedback relating t: Hw useful yu fund this guide fr understanding the rule Hw useful yu fund this guide fr implementing the rule at yur business Suggestins yu have fr imprving the guide, such as additinal implementatin tips 9

10 2. What is the 2013 HOEPA Rule and what des it require? I. When d I have t start fllwing the 2013 HOEPA Rule? The rule applies t lans fr which yu receive an applicatin n r after January 10, II. What d I have t d t cmply with the high-cst mrtgage prvisins f this rule? ( , , and ) When yu riginate a high-cst mrtgage, yu must give additinal disclsures, avid certain lan terms, and ensure the cnsumer receives additinal prtectins, including hmewnership cunseling. 10

11 III. Are nly high-cst mrtgages affected by the 2013 HOEPA Rule? Sme parts f the 2013 HOEPA Rule are related t hmewnership cunseling. These prvisins are utlined in Part 5 f this guide. Whether these prvisins apply des nt depend n whether a lan is a high-cst mrtgage. Under these requirements: Creditrs must prvide a list f hmewnership cunseling rganizatins t mst mrtgage lan applicants within three days f applicatin. This requirement applies t mst types f clsed-end and pen-end credit transactins, including high-cst mrtgages. (See List f hmewnership cunseling rganizatins (RESPA ) n page 33.) Prir t making a lan that permits negative amrtizatin t a first-time brrwer, a creditr must cnfirm that the cnsumer received hmewnership cunseling. This requirement applies t mst types f clsed-end lans secured by a dwelling, but will nt apply t high-cst mrtgages (which cannt have negative amrtizatin). (See Negativeamrtizatin cunseling (TILA (k)) n page 32.) IV. Hw des this rule apply t HELOCs? The 2013 HOEPA Rule extends HOEPA cverage t HELOCs. HELOCs will thus need t be analyzed under HOEPA s cverage tests, and any HELOCs that are high-cst mrtgages will be subject t mst f the same requirements and restrictins as clsed-end, high-cst mrtgages. The 2013 HOEPA Rule prvides additinal guidance t help creditrs apply HOEPA s cverage tests t HELOCs. Fr example, in rder t cmplete HOEPA s annual percentage rate (APR) cverage test fr HELOCs, the rule tells creditrs hw t identify a cmparable clsed-end transactin It als sets frth special pints-and-fees requirements fr HELOCs. (See What is a high-cst mrtgage? n page 12.) The 2013 HOEPA Rule als prvides details t help creditrs apply certain HOEPA requirements and restrictins t HELOCs. Fr example, the rule tells creditrs hw t calculate a cnsumer s ability t repay a high-cst HELOC, as well as hw t apply the prhibitin against balln payments t high-cst HELOCs with a draw perid and a repayment perid. (See What are the restrictins n and additinal cnsumer prtectins fr high-cst mrtgages? n page 24.) 11

12 3. What is a high-cst mrtgage? I. What types f transactins are subject t HOEPA cverage? ( (a)(1)) In general, the fllwing types f cnsumer credit transactins that are secured by a cnsumer s principal dwelling are subject t HOEPA cverage under the rule. These types f transactins must be tested against the HOEPA cverage tests. If they meet any f the cverage tests, they must cmply with the restrictins n lan terms and ther prtectins relating t high-cst mrtgages. These types f transactins are: Purchase-mney mrtgages Refinances Clsed-end hme equity lans Open-end credit plans (i.e., HELOCs) II. What types f transactins are exempt frm HOEPA cverage? ( (a)(2)) The 2013 HOEPA Rule exempts the fllwing types f transactins frm HOEPA cverage. Yu d nt need t test these types f transactins against the HOEPA cverage tests. These types f transactins d nt need t cmply with the restrictins n lan terms and ther prtectins relating t high-cst mrtgages. Hwever, these transactins may still be subject t sme f the cunseling rules discussed in Part 5. 12

13 Reverse mrtgages Cnstructin lans Lans riginated and directly financed by a Husing Finance Agency (HFA), as defined in 24 CFR Lans riginated under the U.S. Department f Agriculture s (USDA s) Rural Develpment Sectin 502 Direct Lan Prgram Nte, hwever, that these exemptins can have qualificatins: The exemptin fr cnstructin lans applies nly t lans that finance the initial cnstructin f a new dwelling. It des nt extend t lans that finance hme imprvements r hme remdels. The exemptin is straightfrward fr cnstructin-nly lans, but a bit mre cmplicated fr cnstructin-t-permanent lans. When yu make a cnstructin-t-permanent lan as tw separate transactins, the cnstructin lan transactin is exempt, but the permanent financing transactin is nt. (Cmment 32(b)-1) Fr a cnstructin-t-permanent lan riginated as a single transactin, cverage must be determined in accrdance with appendix D t Regulatin Z. (Cmment 32(b)-1 and Appendix D) The exclusins fr HFA and USDA lans apply nly t lans that these rganizatins directly finance, nt lans they guarantee r insure. III. Are mrtgages n certain prperty types exempt frm HOEPA cverage? As discussed abve, HOEPA applies t mst types f cnsumer credit transactins secured by a cnsumer s principal dwelling. As a result, mrtgages secured by vacatin r secnd hmes are nt cvered. Mrtgages secured by manufactured husing (whether titled as real prperty r persnal prperty) and ther types f persnal prperty (e.g., an RV r a husebat) are subject t HOEPA cverage if the dwelling is the cnsumer s primary residence. 13

14 IV. Cverage tests: Hw d I determine if a transactin is a high-cst mrtgage? ( (a)(1)) If yu determine that a transactin is nt exempt frm HOEPA cverage, then yu must apply the HOEPA cverage tests t determine if the transactin is a high-cst mrtgage. There are three separate HOEPA cverage tests, based n: 1. The transactin s annual percentage rate (APR) 2. The amunt f pints and fees paid in cnnectin with the transactin 3. The prepayment penalties yu may charge under the lan r credit agreement i. APR cverage test ( (a)(1)(i) and cmments 32(a)(1)(i)-1 t -3 and 32(a)(1)(i)(B)-1) First, determine if a transactin is a high-cst mrtgage based n its APR. A transactin is a high-cst mrtgage if its APR (measured as f the date the interest rate fr the transactin is set) exceeds the Average Prime Offer Rate (APOR) fr a cmparable transactin n that date by mre than: 6.5 percentage pints fr first-lien transactins, generally 8.5 percentage pints fr first-lien transactins that are fr less than $50,000 and secured by persnal prperty (e.g., RVs, husebats, and manufactured hmes titled as persnal prperty) 8.5 percentage pints fr junir-lien transactins ii. Applying the APR cverage test ( (a)(1)(i) and cmments 32(a)(1)(i)-1 t -3 and 32(a)(1)(i)(B)-1) First, determine which f the threshlds listed abve applies t yur transactin. Next, calculate the APR fr yur transactin accrding t the special rules prvided in the 2013 HOEPA Rule. (See Hw d I calculate the APR fr HOEPA cverage? n page 15.) ( (a)(3)) 14

15 Finally, cmpare yur transactin s APR t the APOR fr a cmparable transactin n the same date (i.e., the last date yu set r lck the interest rate befre cnsummatin r accunt pening). The APOR is published at (Cmment 32(a)(1)(i)-1) If the APR fr yur transactin is mre than 6.5 r 8.5 percentage pints (as applicable) higher than the APOR, then yur transactin is a high-cst mrtgage. Fr example, if the APOR is 5 percent, a first-lien transactin fr $50,000 r mre is a high-cst mrtgage if it has an APR (calculated accrding t the special rules fr HOEPA cverage) abve 11.5 percent. Creditrs riginating a HELOC shuld cmpare the HELOC s APR (calculated accrding t the special rules fr HOEPA cverage) t the APOR fr the mst clsely-cmparable clsed-end transactin. ( (a)(1)(i) and cmment 32(a)(1)(i)-2) T identify the mst clsely-cmparable clsed-end transactin, first determine if the HELOC is fixed- r variable-rate. If the HELOC has a variable rate and an ptinal, fixed-rate feature, the HELOC is a variable-rate transactin fr purpses f the APR cverage test. Fr a variable-rate HELOC, the mst clsely-cmparable clsed-end transactin will be a variable-rate transactin with an initial, fixed-rate perid that lasts apprximately as lng as the intrductry perid, if any, n the HELOC. (If the HELOC has n initial, fixed-rate perid, assume an initial, fixed-rate perid f ne year.) Fr a fixed-rate HELOC, the mst clsely-cmparable clsed-end transactin will be a fixed-rate transactin with the same lan term (in years) as the term f the HELOC t maturity. (If the HELOC has n definite plan length, assume a 30-year term until maturity.) V. Hw d I calculate the APR fr HOEPA cverage? ( (a)(3) and cmments 32(a)(3)-1 t -5) Yu calculate the APR that yu use t determine if a transactin is a high-cst mrtgage differently frm the APR that yu disclse n yur TILA disclsures. Fr fixed-rate transactins, calculate the APR by using the interest rate in effect n the date yu set the interest rate fr the transactin. 15

16 Fr transactins where the interest rate varies with an index, use the greater f the intrductry interest rate (if any) r the fully-indexed rate (i.e., the interest rate that results frm adding the maximum margin permitted at any time during the term f the transactin t the value f the index rate in effect n the date yu set the interest rate fr the transactin). If the interest rate fr the transactin may r will vary ther than in accrdance with an index, such as in a step-rate lan, use the maximum rate that the applicant may pay during the term f the transactin. VI. What is the pints-and-fees cverage test?( (a)(1)(ii)) Next, determine if a transactin is a high-cst mrtgage based n the transactin s ttal pints and fees, as defined in (b)(1) and (2). A transactin is a high-cst mrtgage if its pints and fees exceed the fllwing threshlds: 5 percent f the ttal lan amunt fr a lan amunt greater than r equal t $20,000 8 percent f the ttal lan amunt r $1,000 (whichever is less) fr a lan amunt less than $20,000 Implementatin Tip: The threshld fr the pints-andfees cverage test varies based n lan size and is higher fr smaller transactins. The $20,000 and $1,000 amunts will be adjusted annually fr inflatin. The updated figures will be published each year in the cmmentary t Regulatin Z. 16

17 VII. What d I include when calculating pints and fees fr HOEPA cverage? ( (b)(1) and (2)) i. Clsed-end credit transactins ( (b)(1)) T calculate pints and fees fr HOEPA cverage f clsed-end credit transactins, use the same general apprach that yu use fr calculating pints and fees fr qualified mrtgages under the Bureau s Ability t Repay/Qualified Mrtgage Standards under the Truth in Lending Act (Regulatin Z). A cpy f the ATR/QM Rule is available at Other Bureau rules amending and clarifying the ATR/QM Rule n pints and fees are the June 2013 ATR/QM Cncurrent Final Rule, the Octber 2013 Final Rule, and the Octber 2013 Interim Final Rule available at Yu may als cnsult the Bureau s Ability-t-Repay/Qualified Mrtgage Rule Small Entity Cmpliance Guide. ii. Open-end credit plans (HELOCs) ( (b)(2)) T calculate pints and fees fr HOEPA cverage f HELOCs, use the same general apprach that yu use fr calculating pints and fees fr clsed-end credit transactins, but include the additinal items nted belw, if applicable: Participatin fees payable at r befre accunt pening Fees yu charge cnsumers t draw n their HELOCs (yu shuld assume that the cnsumer will draw n the credit line at least nce) When deciding whether yu have t include a particular fee in yur pints-and-fees calculatin, fllw these rules: iii. Pints & Fees Calculatin T calculate pints and fees, add tgether the amunts paid in cnnectin with the transactin r the pen-end credit plan (as applicable) fr the categries f charges listed belw: 17

18 Unless specified therwise, include amunts that are knwn at r befre cnsummatin (fr clsed-end transactins) r accunt pening (fr pen-end credit plans), even if the cnsumer pays them after cnsummatin r accunt pening by rlling them int the lan amunt r drawing n the credit line. In additin, unless specified therwise, clsing csts that yu pay and recup frm the cnsumer ver time thrugh the interest rate are nt cunted in pints and fees. a. Finance charge ( (b)(1)(i)) In general, include all items included in the finance charge (see (a) and (b)). Hwever, yu may exclude the fllwing types and amunts f charges, even if they nrmally wuld be included in the finance charge: Interest r the time-price differential Mrtgage insurance premiums (MIPs) Federal r state gvernment-spnsred MIPs: Fr example, exclude up-frnt and annual FHA premiums, VA funding fees, and USDA guarantee fees. Private mrtgage insurance (PMI) premiums: Exclude mnthly r annual PMI premiums. Yu may als exclude up-frnt PMI premiums if the premium is refundable n a prrated basis and a refund is autmatically issued upn lan satisfactin. Hwever, even if the premium is excludable, yu must include any prtin that exceeds the up-frnt MIP fr FHA lans. Thse amunts are published in HUD Mrtgagee Letters, which yu can access n HUD s website at: n/hudclips/letters/mrtgagee. Bna fide third-party charges nt retained by the creditr, lan riginatr, r an affiliate f either ( (b)(1)(i)(D)) In general, yu may exclude these types f charges even if they wuld be included in the finance charge. Fr example, yu may exclude a bna fide charge impsed by a third-party settlement agent (fr example, an attrney) s lng as neither the creditr nr the lan riginatr (r their affiliates) retains a prtin f the charge. Hwever, yu must still include any third-party charges that are specifically required t be included under ther prvisins f the pints-and-fees calculatin (fr example, certain PMI premiums, certain real estate-related charges, and premiums fr certain credit insurance and debt cancellatin r suspensin cverage). 18

19 Nte that up-frnt fees yu charge cnsumers t recver the csts f lan-level price adjustments impsed by secndary market purchasers f lans, including the GSEs, are nt cnsidered bna fide third-party charges and must be included in pints and fees. Bna fide discunt pints ( (b)(1)(i)(E), (F), and 32(b)(3)) Exclude up t 2 bna fide discunt pints if the interest rate befre the discunt des nt exceed the APOR fr a cmparable transactin by mre than 1 percentage pint; r Exclude up t 1 bna fide discunt pint if the interest rate befre the discunt des nt exceed the APOR fr a cmparable transactin by mre than 2 percentage pints. Fr transactins that are secured by persnal prperty, exclude up t 1 r 2 bna fide discunt pints as set frth abve, except cmpare the interest rate befre the discunt t the average rate fr a lan insured under Title I f the Natinal Husing Act (12 U.S.C et seq.), nt t the APOR. iv. Nte that a discunt pint is bna fide if it reduces the cnsumer s interest rate by an amunt that reflects established industry practices, such as secndary mrtgage market nrms. An example is the pricing in the t-be-annunced market fr mrtgage-backed securities. Lan riginatr cmpensatin ( (b)(1)(ii) and cmments 32(b)(1)(ii)-1 t -5) Include cmpensatin paid directly r indirectly by a cnsumer r creditr t a lan riginatr ther than cmpensatin paid by a mrtgage brker, creditr r retailer f manufactured hmes t an emplyee. Include cmpensatin that is attributable t the transactin, t the extent that such cmpensatin is knwn as f the date the interest rate fr the transactin is set. In general, include the fllwing: Cmpensatin paid directly by a cnsumer t a mrtgage brker: Include the amunt the cnsumer pays directly t the mrtgage brker. If this payment is already included in pints and fees because it is included in the finance charge under (b)(1)(i), it des nt have t be included again as lan riginatr cmpensatin under (b)(1)(ii). Implementatin Tip: In the cntext f determining what lan riginatin cmpensatin must be included in pints and fees, a mrtgage brker refers t bth brkerage firms and individual brkers. Cmpensatin paid by a mrtgage brker t an emplyee is nt included in pints and fees. 19

20 Cmpensatin paid by a creditr t a mrtgage brker: Include the amunt the creditr pays t the brker fr the transactin. Include this amunt even if the creditr included riginatin r ther charges paid by the cnsumer t the creditr as pints and fees under (b)(1)(i) as a finance charge r if the creditr des nt receive an up-frnt payment frm the cnsumer t cver the brker s fee but rather recups the fee frm the cnsumer thrugh the interest rate ver time. Cmpensatin paid by a cnsumer r creditr t a manufactured hmeretailer: Include the amunt paid by a cnsumer r creditr t a manufactured hme retailer that qualifies as a lan riginatr under (a)(1) fr lan riginatin activities. Cmpensatin paid by the manufactured hme retailer t its emplyees des nt have t be included. ( (b)(1)(ii)(D) and cmment 32 (b)(1)(ii)-5). Cmpensatin included in the sales price f a manufactured hme. Include lan riginatr cmpensatin that the creditr has knwledge is included in the sales price f a manufactured hme. The creditr is nt required t investigate the sales price f a manufactured hme t determine if the sales price includes lan riginatr cmpensatin. (Cmment 32 (b)(1)(ii)-5). a. Real estate-related fees ( (b)(1)(iii)) The fllwing categries f charges are excluded frm pints and fees nly if: 1. The charge is reasnable; 2. The creditr receives n direct r indirect cmpensatin in cnnectin with the charge; and 3. The charge is nt paid t an affiliate f the creditr. If ne r mre f thse three cnditins is nt satisfied, yu must include these charges in pints and fees even if they wuld be excluded frm the finance charge: Fees fr title examinatin, abstract f title, title insurance, prperty survey, and similar purpses Fees fr preparing lan-related dcuments, such as deeds, mrtgages, and recnveyance r settlement dcuments Ntary and credit-reprt fees Prperty appraisal fees r inspectin fees t assess the value r cnditin f the prperty if the service is perfrmed prir t cnsummatin, including fees related t pest-infestatin r fld-hazard determinatins 20

21 Amunts paid int escrw r trustee accunts that are nt therwise included in the finance charge (except amunts held fr future payment f taxes) b. Premiums fr credit insurance; credit prperty insurance; ther life, accident, health r lss-f-incme insurance where the creditr is beneficiary; r debt cancellatin r suspensin cverage payments ( (b)(1)(iv)) Include premiums fr these types f insurance that are payable at r befre cnsummatin even if such premiums are rlled int the lan amunt, if permitted by law. Yu d nt need t include these charges if they are paid after cnsummatin (fr example, mnthly premiums). Nte that credit prperty insurance means insurance that prtects the creditr s interest in the prperty. It des nt include hmewner s insurance that prtects the cnsumer. Yu d nt need t include premiums fr life, accident, health, r lss-f-incme insurance if the cnsumer (r anther persn designated by the cnsumer) is the sle beneficiary f the insurance. c. Maximum prepayment penalty ( (b)(1)(v)) Include the maximum prepayment penalty that a cnsumer culd be charged fr prepaying the lan. T determine if yu are permitted t charge a prepayment penalty. (See Hw des the 2013 HOEPA Rule regulate prepayment penalties? n page 22.) d. Prepayment penalty paid in a refinance ( (b)(1)(vi)) If yu are refinancing a lan that yu r yur affiliate currently hlds r is currently servicing, then include any penalties yu charge cnsumers fr prepaying their previus lans. 21

22 v. Charges paid by third parties (Cmment 32(b)(1)-2) vi. Include charges paid by third parties that fall within the definitin f pints and fees in (b)(1)(i) thrugh (vi) (discussed abve), including charges included in the finance charge. Charges paid by third parties that are excluded frm pints and fees in (b)(1)(i)(A) thugh (F) d nt have t be included in pints and fees. Seller s pints are excluded frm the finance charge (see (c)(5)) and therefre can be excluded frm pints and fees, but charges paid by the seller shuld be included if they are fr items listed as pints and fees in (b)(1)(ii) thrugh (vi). Creditr-paid charges. (Cmment 32(b)(1)-2) Charges paid by the creditr, ther than lan riginatr cmpensatin paid by the creditr that is required t be included in pints and fees under (b)(1)(ii), can be excluded frm pints and fees. VIII. Hw des the 2013 HOEPA Rule regulate prepayment penalties? ( (a)(1)(iii) and 32(d)(6)) As required by the Ddd-Frank Act, the 2013 HOEPA Rule adds a prepayment penalty cverage test and als prhibits prepayment penalties fr high-cst mrtgages. Therefre, the prepayment penalty cverage test belw establishes the maximum prepayment penalty amunt yu may charge and the maximum time frame during which yu may charge that prepayment penalty n a transactin that falls within the categries f lans that HOEPA cvers. (See What types f transactins are subject t HOEPA cverage? n page 12.) i. Prepayment penalty cverage test ( (a)(1)(iii)) A transactin is a high-cst mrtgage if yu charge a prepayment penalty: Mre than 36 mnths after cnsummatin r accunt pening, r In an amunt mre than 2 percent f the amunt prepaid. 22

23 IX. What is cnsidered a prepayment penalty? ( (b)(6)(i) (clsed-end credit) and (b)(6)(ii) (HELOCs)) Fr a clsed-end credit transactin, a prepayment penalty generally means a charge impsed fr paying all r part f the lan s principal befre the date n which the principal is due. Fr purpses f the 2013 HOEPA Rule, the term prepayment penalty means the same thing fr a clsed-end credit transactin as in the Bureau s Ability-t-Repay/Qualified Mrtgage Rule. ( ) Fr a HELOC, a prepayment penalty generally means a charge impsed if the cnsumer terminates the HELOC prir t the end f its term. The rule des nt cnsider it a prepayment penalty if yu pay bna fide third-party charges n a cnsumer s behalf n the cnditin that the cnsumer des nt fully prepay a clsed-end credit transactin (r terminate a HELOC) sner than 36 mnths after riginatin. As discussed abve, yu shuld include prepayment penalties in yur pints-and-fees calculatin. Specifically, pints and fees include the maximum prepayment penalty amunt yu may charge n the transactin. If yu are refinancing a transactin yu currently hld, then pints and fees als include any penalties yu are charging the cnsumer fr prepaying his previus transactin. (See What is the pints-and-fees cverage test? n page 16 and What d I include when calculating pints and fees fr HOEPA cverage? n page 17.) 23

24 4. What are the restrictins n and additinal cnsumer prtectins fr high-cst mrtgages? ( (d) and ) If yu d nt make any transactins that are high-cst mrtgages, then yu will have n cmpliance bligatins under the remaining HOEPA rules discussed in this sectin. Hwever, please see the cunseling requirements discussed in Part 5, which are nt limited t high-cst mrtgages. If yu d make high-cst mrtgages, yu must cmply with the rules described in this sectin and will find it helpful t clsely examine , , and These rules prvide several cnsumer prtectins fr high-cst mrtgages, including: Specific disclsure requirements Restrictins n transactin terms Restrictins n fees and practices Ability-t-repay requirements A pre-lan cunseling requirement The Truth in Lending Act generally prvides cnsumers with enhanced remedies fr vilatins f these prvisins. 24

25 I. What special disclsures are required fr high-cst mrtgages? ( and (c)) The 2013 HOEPA Rule cntinues t require yu t prvide a disclsure t cnsumers at least three business days prir t cnsummatin r accunt pening f a high-cst mrtgage. The disclsure must be in writing and in a frm the cnsumer may keep, and must: Infrm the cnsumer that the lan will nt be effective until cnsummatin r accunt pening ccurs Explain the cnsequences f default Disclse lan terms such as APR, amunt brrwed, and mnthly payment Implementatin Tip: There is required wrding yu must include in this disclsure, which yu will find in (c)(1). In additin, appendix H t Regulatin Z als cntains sme sample disclsures. Sample H-16 illustrates the disclsures required under (c). In the case f variable-rate lans, explain the maximum mnthly payment that may be required under the terms f the lan r credit plan II. What are the restrictins n lan terms fr high-cst mrtgages? ( (d)) The rule restricts r bans certain risky lan features fr high-cst mrtgages, including balln payments, prepayment penalties, and due-n-demand features. It als leaves several existing HOEPA prtectins unchanged. i. Balln payments Balln payments are generally banned fr high-cst mrtgages and allwed in fur circumstances: ( (d)(1)) 1. The payment schedule is adjusted t accmmdate the cnsumer s seasnal r irregular incme. ( (d)(1)(A)) 2. The lan is a shrt-term bridge lan (12 mnths r less) t finance a new hme purchase fr a cnsumer selling an existing hme. ( (d)(1)(B)) 25

26 3. The creditr meets criteria fr a small creditr predminantly serving a rural r underserved area, and the lan meets specific criteria set frth in the Bureau s Ability-t-Repay/Qualified Mrtgage Rule. ( (d)(1)(C) and (f)) 4. Only fr lans made n r befre January 10, 2016, the creditr meets the criteria fr a small creditr -- regardless f whether it perates predminately in rural r underserved areas -- and the lan meets the specific criteria fr qualified mrtgages set frth in the Bureau s Ability-t-Repay/Qualified Mrtgage Rule. ( (d)(1)(ii)(C) and (e)(6).) Fr additinal guidance n determining when a transactin may be cnsidered t have a balln payment, see cmments 32(d)(1)(i)-1 t -3. ii. iii. Prepayment penalties ( (d)(6)) Prepayment penalties are banned fr high-cst mrtgages. (See Hw des the 2013 HOEPA rule regulate prepayment penalties? n page 22.) Due-n-Demand Features ( (d)(8)) Due-n-demand features that allw fr acceleratin in high-cst mrtgages are allwed nly in cases where: The cnsumer cmmits fraud r makes a material misrepresentatin in cnnectin with the lan r credit agreement. The cnsumer defaults n payment. The cnsumer s actin r inactin adversely affects yur security interest fr the lan. III. What ther acts r practices are prhibited r restricted fr highcst mrtgages? The 2013 HOEPA Rule places these additinal restrictins and prhibitins n high-cst mrtgages: Creditrs and mrtgage brkers are prhibited frm recmmending default n an existing lan t be refinanced by a high-cst mrtgage. ( (a)(6) and cmments 34(a)(6)-1 and -2) Creditrs, servicers, and assignees cannt charge a fee t mdify, defer, renew, extend, r amend a high-cst mrtgage. ( (a)(7)) 26

27 Late fees are restricted t 4 percent f the past due payment, and pyramiding f late fees is prhibited. There are rules fr impsing late fees when a cnsumer resumes making payments after missing ne r mre payments. ( (a)(8) and cmments 34(a)(8)(i)-1, 34(a)(8)(iii)-1, and 34(a)(8)(iv)-1) Fees fr generatin f payff statements are generally banned, with limited exceptins. ( (a)(9)) Pints and fees cannt be financed (i.e., rlled int the lan amunt). Hwever, yu can finance clsing charges excluded frm the definitin f pints and fees, such as bna fide third-party charges. (See What d I include when calculating pints and fees fr HOEPA cverage? n page 17.) ( (a)(10) and cmments 34(a)(10)-1 and -2) Yu cannt purpsely structure a transactin t evade HOEPA cverage (fr example, splitting a lan int tw lans t divide the lan fees t avid the pints-and-fees threshld). ( (b) and cmments 34(b)-1 and -2) IV. Which existing HOEPA and Regulatin Z prtectins still apply t high-cst mrtgages? ( (d) and (a)(1) t (3)) HOEPA and Regulatin Z prhibit the fllwing lan terms fr high-cst mrtgages, which the final rule leaves unchanged: Negative amrtizatin ( (d)(2)) A payment schedule that cnslidates mre than tw peridic payments and pays them in advance frm lan prceeds ( (d)(3)) An increase in the interest rate after default ( (d)(4)) In the case f acceleratin as a result f default in payment, a refund f interest calculated in a manner less favrable t the cnsumer than the actuarial methd ( (d)(5)) The 2013 HOEPA Rule als leaves these HOEPA and Regulatin Z prhibitins unchanged: 27

28 Paying a cntractr under a hme-imprvement cntract frm the prceeds f a highcst mrtgage (with certain exceptins) ( (a)(1)) Selling a high-cst mrtgage in the secndary market withut prviding a high-cst mrtgage ntice t the assignee ( (a)(2)) Refinancing any high-cst mrtgage int anther high-cst mrtgage within ne year after having extended credit, unless the refinancing is in the cnsumer s interest ( (a)(3)) V. What are the new ability-t-repay requirements fr high-cst mrtgages? ( (a)(4)) The rule requires yu t determine a cnsumer s ability t repay a high-cst mrtgage prir t cnsummatin r accunt pening. There are different rules fr clsed-end high-cst mrtgages (i.e., lans taken ut t purchase a hme r refinance an existing mrtgage) and pen-end highcst mrtgages (HELOCs). i. Clsed-end credit transactins ( (a)(4) and ) Histrically, regulatins implementing HOEPA have prhibited creditrs frm extending highcst mrtgages withut regard t the cnsumer s repayment ability. The Ddd-Frank Act established new ability-t-repay requirements fr mst clsed-end mrtgage lans, including high-cst mrtgages. These new requirements were implemented in the Bureau s Ability-t-Repay/Qualified Mrtgage Rule. A cpy f that rule is available at In light f these new requirements, creditrs that riginate clsed-end high-cst mrtgages are required t satisfy the same ability-t-repay requirements as ther clsed-end mrtgages under Yu may als find it helpful t cnsult the Bureau s Ability-t-Repay and Qualified Mrtgage Rule Small Entity Cmpliance Guide. Nte that the Bureau s Ability-t-Repay/Qualified Mrtgage Rule allws fr a lan that meets the criteria fr a qualified mrtgage but that is a high-cst mrtgage because f its APR t be cnsidered a qualified mrtgage. Thus, it is pssible fr a lan with a rate that exceeds the HOEPA rate threshld t be a qualified mrtgage if the lan therwise meets the qualified mrtgage criteria. 28

29 ii. A qualified mrtgage that is als a high-cst mrtgage wuld be eligible fr a presumptin f cmpliance with the Ability-t-Repay/Qualified Mrtgage Rule. Clsed-end high-cst mrtgages that d nt meet the criteria fr a qualified mrtgage will receive n presumptin f cmpliance with the ability-t-repay requirements. Open-end high-cst mrtgages (HELOCs) ( (a)(4) and cmments 34(a)(4)-1 t -7 and 34(a)(4)(ii)(B)-1) The new Ddd-Frank Act ability-t-repay requirements d nt apply t HELOCs. Thus, fr pen-end high-cst mrtgages, repayment ability will still be determined using HOEPA s abilityt-repay rules (which have been revised in the 2013 HOEPA Rule t apply t HELOC transactins). ( (a)(4)(i) t (iv)) These criteria are similar t thse fund in the pre- Ddd-Frank Act Sectin 34 f Regulatin Z. In general, yu must cnsider the cnsumer s: Current and reasnably expected incme r assets (verified with W-2s, tax returns, payrll receipts, financial institutin recrds, r ther third-party dcuments that prvide reasnably reliable evidence) ( (a)(4)(ii)(A)) Current bligatins, including any mrtgage-related bligatins such as prperty taxes, required insurance premiums, cmmunity assciatin fees, grund rent, and leasehld payments ( (a)(4)(i) and (ii)(b) and cmments 34(a)(4)-1 t -7 and 34(a)(4)(ii)(B)-1) These repayment-ability prvisins still prvide fr a presumptin f cmpliance if specified criteria are met. ( (a)(4)(iii) and (iv) and cmments 34(a)(4)(iii)-1 and -2) Fr mre infrmatin, see (a)(4)(i) t (iv) and related cmmentary. VI. What are the hmewnership cunseling requirements fr highcst mrtgages? ( (a)(5)(i) t (vi)) Prir t making a high-cst mrtgage, yu must receive written certificatin that the cnsumer has received hmewnership cunseling n the advisability f the mrtgage frm a HUDapprved cunselr r a state husing finance authrity, if permitted by HUD. 29

30 The hmewnership cunselr cannt be affiliated with r emplyed by yur rganizatin. Yu cannt steer the cnsumer t a particular cunseling agency. ( (a)(5)(iii), (iv), and cmments 34(a)(5)(vi)-1 and -2) VII. When shuld the cunseling take place fr high-cst mrtgages? The cnsumer will need t have received either the RESPA gd-faith estimate r the disclsures required under fr HELOCs befre the hmewnership cunseling sessin n the advisability f the mrtgage. Fr transactins where neither the RESPA gdfaith estimate r the disclsure fr HELOCs is prvided, cunseling must ccur after the cnsumer receives the disclsures required fr high-cst mrtgages under (c). Nte that the hmewnership cunselr must verify that the cnsumer received all f the highcst mrtgage disclsures r the disclsures required under RESPA, including the settlement disclsures, befre the cunselr can issue the certificatin f cunseling. Because the cnsumer typically gets sme f these dcuments at r just befre clsing, it may be best fr cunseling t ccur in tw stages: 1. In the first stage, the cnsumer receives cunseling n the mrtgage after receipt f the initial gd-faith estimate r disclsure, r the high-cst mrtgage disclsures under (c), if necessary. 2. In the secnd stage, the cnsumer has a secnd cntact with the cunselr, s the cunselr can verify receipt f all the additinal required disclsures prir t issuing certificatin. The high-cst mrtgage disclsures under (c) are required t be prvided at least three business days befre clsing. Fr clsed-end, nn-respa transactins where nly the high-cst mrtgage disclsures under (c) are prvided, the creditr may wish t prvide the disclsures sner t prvide sufficient time fr the cunseling and the written certificatin that the cnsumer has received the cunseling. (Cmment 34(a)(5)(ii)-2). Nte that the rule des nt require in-persn cunseling. Cunseling may be prvided via telephne, s lng as it is prvided by a HUD-apprved cunselr. A self-study prgram may nt be used t satisfy the cunseling requirement. The cunselr can send yu the written certificatin via mail, , r facsimile, s lng as the certificatin is in a retainable frm. ( (a)(5)(i) and cmment 34(a)(5)(i)-4) 30

31 VIII. Wh pays fr hmewnership cunseling fr high-cst mrtgages? ( (a)(5)(v)) Yu can pay the cunseling fee fr the cnsumer, but yu cannt cnditin payment n the cnsumer getting the high-cst lan. Cnsumers can pay the fee themselves, r they can finance the fee as part f the mrtgage transactin if the fee is a bna-fide third-party charge. (Cmment 34(a)(5)(v)-1) 31

32 5. What are the additinal hmewnership cunseling requirements? I. What hmewnership cunseling requirements apply t creditrs regardless f whether r nt they make high-cst mrtgages? In additin t the pre-lan cunseling requirement fr high-cst mrtgages, the 2013 HOEPA Rule implements tw ther Ddd-Frank Act hmewnership cunseling prvisins: 1. An amendment t Regulatin Z (TILA) that requires pre-lan cunseling fr negative-amrtizatin lans made t first-time brrwers 2. An amendment t Regulatin X (RESPA) that requires yu t give federally-related lan applicants a list f husing cunselrs i. Negative-amrtizatin cunseling (TILA (k)) Yu must btain sufficient dcumentatin shwing that a first-time brrwer has received hmewnership cunseling prir t making mst types f clsed-end, dwelling-secured lans that permit negative amrtizatin. Yu cannt steer the cnsumer t a particular cunselr r cunseling agency. A few things t nte cncerning this rule: It is specific t first-time brrwers and des nt apply t cnsumers wh have taken ut mrtgages befre. 32

33 ii. It des nt apply t high-cst mrtgages since negative amrtizatin is prhibited fr high-cst mrtgages. Like the HOEPA cunseling requirement, the cunselr must be federally-certified r apprved. Yu must receive dcumentatin that the cnsumer has btained pre-lan cunseling befre making the lan. List f hmewnership cunseling rganizatins (RESPA ) The final rule cntains a new requirement that yu must give applicants fr federally-related mrtgages (whether r nt a high-cst mrtgage) a written list f hmewnership cunseling rganizatins within three business days f receiving the applicatin. Applicants fr reverse mrtgages and lans f r time-shares are excluded. In rder t cmply, yu have tw ptins fr btaining the list required t be prvided t lan applicants: Use a tl develped and maintained by the Bureau n its website, (which uses U.S. Department f Husing and Urban Develpment (HUD) data n HUD-apprved cunseling agencies) ( (a)(1)(i)) r Use data made available by the Bureau r HUD, prvided that the data is used in accrdance with instructins prvided with the data. ( (a)(1)(ii))) Implementatin Tip: The Regulatin X hmewnership cunseling prvisins (as ppsed t the pre-lan cunseling requirements fr high-cst mrtgages and negativeamrtizatin lans) require yu nly t prvide cnsumers with a list f cunseling resurces. It is up t these cnsumers t decide if they want t get cunseling the rule des nt require them t d s. See the Bureau s Nvember 2013 Interpretive Rule ( Hmewnership Cunseling Organizatins Lists Interpretive Rule ), describing data instructins fr lenders t use in cmplying with the (a)(1)(ii) requirement t generate a list f cunseling rganizains by using data prvided by the Bureau r HUD. The fllwing summarizes thse instructins: The list f husing cunseling agencies prvided t each cnsumer must cmply with the fllwing general requirements: Yu must prvide a list f ten HUD-apprved husing cunseling agencies.. The tl maintained by the Bureau will generate a list f ten HUD-apprved husing cunseling agencies. 33