Home Owners Equity Act
The Home Ownership and Equity Protection Act, or HOEPA, is a law designed to protect consumers from being locked into risky mortgages.
The law, passed in 1994, requires high-interest loans to undergo intense scrutiny.
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Loans Scrutinized Under HOEPA
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The law applies to loans whose interest rate is more than 8 percent above the yield on a Treasury security, a debt instrument with a fixed rate. It also applies to second mortgages whose interest rate is more than 10 percent above the yield on a Treasury security.
Other Loans Covered
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HOEPA also examines loans whose fees and points amount to more than 8 percent of the loan or $583, whichever is larger at or before closing.
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Rules Lenders Must Follow
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Lenders handling these mortgages must notify consumers in writing that they don't have to complete the loan, even if they have signed an application. Consumers will have three days to back out of the deal.
Disclosing Details
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Additionally, lenders must tell consumers the amount borrowed, the loan's interest rate and any payments that spike as a result of the loan structure. They must notify consumers that they could lose their home if they default on the loan.
Violations
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Consumers can sue lenders that violate these regulations.
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