HOEPA Flashcards
HOEPA stands for ?
The Home Ownership and Equity Protection Act (HOEPA)
The federal government introduced the Home Ownership and Equity Protection Act (HOEPA) in _______ to address predatory lending practices.
1994
HOEPA provides protections under the Truth-in-Lending Act for loans characterized by high _______ rates and fees, labeling them as “high-_____ mortgages.
interest
cost
high-cost mortgage is loan secured by the borrower’s primary residence, meeting specific criteria related to APR, points and fees, or prepayment penalties ? T/F
True
High Cost Mortgage is a loan with:
1) an annual percentage rate (APR) that exceeds a certain threshold (Prime offer rate ) or
2) a loan with certain other features that make it more risky or expensive for the borrower
true
The thresholds are based on the Average Prime Offer Rate (APOR), which is the average interest rate offered to borrowers with ________ credit for a similar type of mortgage loan
excellent
The thresholds vary based on the principal amount of the loan and whether it exceeds the conforming loan limit.
The conforming loan limit is the ____________ loan amount that can be backed by government-sponsored entities such as Fannie Mae and Freddie Mac
Maximum
The principal amount of a loan refers to the _______ amount of money that is borrowed from a lender.
This amount does not include any: interest or fees that are charged on the loan.
Initial
High-cost mortgages under HOEPA are subject to a number of requirements designed to protect borrowers, including:
- _____________ penalties,
- _______________ payments, and
- _________ amortization
- A requirement that lenders verify the borrower’s ability to repay the loan
- A requirement that borrowers receive certain disclosures before the loan is made, including a notice that the loan is a high-cost mortgage and a statement of the borrower’s rights under HOEPA.
- A right of rescission, allowing the borrower to cancel the loan within a certain period of time after closing.
prepayment penalties
Balloon Payment s
negative
(HOEPA) covers certain types of mortgage loans, including:
Closed End loans
Second Mortgages
HELOCS
High Cost Mortgages
Certain Refinances
High Cost Mortgage Thresholds must Meets at least one of the following thresholds:
APR:
First-lien mortgages: a first-lien home loan is a high-cost mortgage if its APR is ____ percentage points above the average prime offer rate for a comparable transaction.
Subordinate-lien mortgages: a subordinate-lien home loan is a high-cost mortgage if its APR is ____ percentage points above the average prime offer rate for a comparable transaction.
Points and fees threshold:
- the threshold is triggered if points and fees exceed the following amounts for a transaction:
- Threshold for loans of $26,092 or more: the threshold is triggered if the points and fees exceed \_\_\_\_\_ % of the total loan amount
- Threshold for loans of less than $26,092: the threshold is triggered if the points and fees exceed the lesser of 8% of the total loan amount or $1,305
A prepayment penalty threshold:
- A home loan may also be a high-cost mortgage if it includes:
- A prepayment penalty provision that is in force for more than 36 months after consummation
or
▪ Prepayment penalties that can exceed more than 2% of the amount prepaid
6.5 % points > APOR
8.5 % Points > APOR
5 %
Loans Exempt from HOEPA
▪ ________ mortgage loans
▪ _____ loans used to finance the initial construction of a dwelling
▪ Loans originated by a housing finance agency and for which the agency is the creditor
▪ Loans originated by the USDA (RHS loans)
Reverse mortgage loans
Bridge Loans
Higher Priced Loans are loans that exceed the APOR by ____% points for first-lien loans with a principal amount that “does not” exceed the conforming loan limit
_____ percentage points for first-lien loans with a principal amount that “exceeds” the conforming loan limit
____ percentage points or more for loans secured by a subordinate lien
1.5 % points
2.5 % points
3.5 % points
What is the primary purpose of the Home Ownership and Equity Protection Act (HOEPA)?
a. To lower interest rates on mortgages
b. To provide free housing counseling
c. To address predatory lending practices
d. To eliminate mortgage insurance
C
Which year was HOEPA enacted?
a. 1980
b. 1994
c. 2003
d. 2010
B
HOEPA applies to loans secured by:
a. Commercial properties
b. Rental properties
c. The borrower’s primary residence
d. Vacant land
c
A high-cost mortgage under HOEPA is defined as having an APR that exceeds the average prime offer rate (APOR) by how many percentage points for first-lien mortgages?
a. 3.5 percentage points
b. 5.0 percentage points
c. 6.5 percentage points
d. 8.0 percentage points
c
Which of the following loan features is prohibited under HOEPA?
a. Fixed interest rates
b. Prepayment penalties beyond 36 months
c. Standard closing costs
d. Adjustable-rate mortgages
b
What type of loan is exempt from HOEPA regulations?
a. High-cost mortgages
b. Reverse mortgages
c. Second mortgages
d. Home equity lines of credit (HELOCs)
b
HOEPA was amended by which act to expand its scope and protections?
a. Gramm-Leach-Bliley Act
b. Dodd-Frank Act
c. Sarbanes-Oxley Act
d. Affordable Care Act
b
Which of the following is NOT a requirement for high-cost mortgages under HOEPA?
a. Verification of the borrower’s ability to repay
b. Prohibition of balloon payments
c. Mandatory mortgage insurance
d. Prohibition of negative amortization
c
What is the right of rescission under HOEPA?
a. The right to increase loan amount
b. The right to cancel the loan within a certain period after closing
c. The right to lower the interest rate
d. The right to defer payments
b
HOEPA applies to which of the following types of refinancing transactions?
a. Business loans
b. Loans for new home construction
c. Refinancing that increases the interest rate or fees
d. Auto loans
c
- HOEPA applies to both open-end and closed-end home equity loans.
- True
- False
true
- A loan is considered high-cost if its points and fees exceed 5% of the total loan amount for loans over $26,092.
- True
- False
True
- Reverse mortgages are covered under HOEPA.
- True
- False
false
- The conforming loan limit is the maximum loan amount that can be backed by government-sponsored entities such as Fannie Mae and Freddie Mac.
- True
- False
true
- Loans originated by a housing finance agency are exempt from HOEPA.
- True
- False
true
- Explain what constitutes a high-cost mortgage under HOEPA in terms of APR thresholds.
- A high-cost mortgage under HOEPA is defined as having an APR that exceeds the average prime offer rate (APOR) by ___ percentage points for first-lien mortgages and by 8.5 percentage points for subordinate-lien mortgages.
6.5
- Describe the protections provided to borrowers under HOEPA for high-cost mortgages.
- Protections include prohibitions on certain loan terms and practices (e.g., __________ penalties, balloon payments, negative amortization), requirements for lenders to verify the borrower’s ability to repay, mandatory disclosures about the high-cost mortgage status and borrower rights, and a right of rescission allowing the borrower to cancel the loan within a certain period after closing.
prepayment penalties
