Watch for HOEPA Triggers
Credit unions should train employees to look for triggers that would require disclosures and terms mandated by the Home Ownership and Equity Protection Act, said presenters Oct. 16 during a CUNA Mutual webinar.
Even if a credit union has decided not to make HOEPA loans, it must still be aware of the law and new updates that go into effect in January 2014, said Lauren Capitini, CUNA Mutual regulatory compliance manager, and Maureen Clark, regulatory compliance consultant for CUNA Mutual’s LOANLINER division.
“My thought is that credit unions are going to feel the greatest impact on the front end in making a determination if a loan is subject to HOEPA regulations,” Capitini said in a post-webinar interview. “You have to understand what a HOEPA loan is and isn’t, and the triggers that will put you into high cost categories.”
Amendments to HOEPA include an expanded scope of the type of loans covered, additional disclosures, revised and new prohibitions on loan terms and creditor restrictions, and required counseling for borrowers under certain circumstances.
Under the new regs, any borrower with a high-cost loan must complete counseling and lenders must obtain documentation that the borrower received it, the women said in the webinar.
Lenders must also provide a list of counselors within three days of the loan application. Other requirements also apply.
Webinar leaders said determining what triggers a HOEPA loan can be complex and includes points and fees, Annual Percent Rate versus Average Prime Offer Rate and prepayment penalties determined by fairly complex requirements. If a loan triggers a HOEPA classification, the lender can face restrictive loan terms and additional disclosures.
“Prepayment penalties keep coming up as triggers and, oh my gosh, these can be really, really yucky,” Capitini told webinar participants.
The penalties, which can be levied for full or partial prepayment of the transaction’s principle before it is due, are prohibited for federal credit unions, she said. However, it can put state-chartered credit unions in jeopardy if real estate loans are not carefully managed.
Other changes to HOEPA loan originations include disclosure requirements and loan restrictions regarding minimum periodic loan payments, balloon payments, ARM payments and other criteria.
Given the changes and the additional burdens, credit unions may simply want to avoid issuing HOEPA loans, Capatini and Clark said.
Credit unions also should make sure contract language does not include prepayment penalty language. The most critical tactic, the presenters said, is to train staff to be on the lookout for any triggers at the front end of any loan discussions that might launch a HOEPA loan.
“It’s not that HOEPA loans are bad, but for a credit union there are more considerations to take into account than signing the consumer up and sending him on his way with the loan,” Clark said. “The secret is to recognize those triggers and respond accordingly.”
HOEPA, enacted in 1994 as an amendment to the Truth in Lending Act, was designed to address abusive practices in refinances and closed-end home equity loans with high interest rates or high fees. Since HOEPA’s enactment, such loans meeting any of HOEPA’s high-cost coverage tests have been subjected to special disclosure requirements and terms restrictions, and consumers with high-cost mortgages have had enhanced remedies for violations. ν