If you are refinancing your mortgage or applying for a mortgage loan in installments, you may be covered by the Housing Property Protection and Mortgage Amortization Act (HOEPA). This law deals with certain deceptive and unfair practices of loans with mortgage guarantee and establishes requirements for certain loans with high fees and charges. This type of loan is also called “Mortgage Section 32” since that is the name and number of the section of the law that establishes the corresponding regulations.
- HOEPA loans
- Mandatory informational data
- Prohibited terms and conditions
- If the provider breaks the law
Mandatory informational data
If your loan meets the criteria of the HOEPA law mentioned above, the lender must provide you with several informative data within a minimum period of three business days prior to the closing date of the loan, namely:
- A written notice stating that it is not necessary to finalize the loan, even if you have signed the loan application and received the mandatory information. After receiving the informational data stipulated in Section 32, you have three business days to decide if you want to sign the loan agreement.
- The notice should warn you that because the lender will have a mortgage on your home, you may lose your residence and all the money you would have paid for it if you did not make your payments.
- The APR rate, the amount of the regular payment (including any applicable global payments), and when it comes to the refinancing of a mortgage, must inform you of the loan amount (and if the loan amount includes the credit insurance premiums as well) must declare it). For variable rate loans, the lender must inform you that there may be an increase in the rate and the monthly payment, and you must also declare the maximum amount of the monthly payment.
Prohibited terms and conditions
The following terms and conditions are prohibited in the loans of high fees and charges:
- For loans of less than five years, global payments are prohibited – in cases where regular payments do not completely cancel the principal balance and a lump sum payment of more than double the amount of the regular payments is required. There is one exception: global payments are allowed for bridge loans with a term of less than one year that are used to buy or build a house.
- Negative amortization – an increase in the balance of a loan caused by adding unpaid interest to the balance of the loan. This happens when the regularly scheduled payment does not cover the amount of interest owed.
- Interest rate due to default or payment default higher than the rates applied prior to default.
- Interest reimbursements in case of default that are calculated by any method less favorable than the actuarial method.
- A repayment program in which more than two regularly scheduled payments are consolidated that must be paid in advance with the money obtained from the loan.
- Most penalties for early payment, including reimbursements of unearned interest calculated by any method less favorable than the actuarial method. An exception applies if:
- The lender verifies that your total monthly debt (including mortgage) equals 50 percent or less of your gross monthly income;
- You get the money to repay the loan from any other source unrelated to the lender or an affiliate of the lender;
- The lender exercises the penalty clause during the first two years after the mortgage started; Y
- The regularly scheduled payment amount for the principal and interest can not change during the first four years after the loan is initiated.
- A clause of payment under demand, except:
- If you commit a fraud, or if you deliberately conceal or falsify facts related to the loan;
- If you do not repay the loan according to the terms established in the loan agreement; or
- If you take any action that adversely affects the creditor’s guarantee.
The providers can not do the following either:
- Give you a loan based on the collateral value of your property without initially considering your ability to repay the loan, including your current income and logically anticipated income, your employment, your other assets other than the asset consigned as collateral, and your current obligations (including those obligations related to mortgages). In addition, the money for home improvement loans must be given directly to you, jointly with you and the contractor who will do the improvement work, or in some cases, an escrow agent.
- Refinancing a HOEPA loan by converting it into another HOEPA loan within the first 12 months of its origination, unless the new loan is more favorable to you. This rule also applies to assignees (whether persons or entities) that retain or administer the loan.
- Erroneously document a high-cost non-renewable loan as a renewable loan. For example, a high-cost mortgage can not be structured as a home equity line of credit if there is no logical expectation that additional transactions will occur.
If the provider breaks the law
You may have the right to sue a lender who violates the requirements of the HOEPA law. If you win the lawsuit, you can recover statutory and actual damages, court costs and attorney’s fees. Also, maybe you could cancel the loan up to three years after closing.