A HOEPA or Not a HOEPA - How to Tell
by David Dickinson, BOL Guru Guru BIOS
Question: How do you tell if a loan is a HOEPA loan?
Answer: First, HOEPA does not apply to [§226.32(a)(2)]:
1. A residential mortgage transaction (construction loans, purchase loans, etc.)
2. A reverse mortgage transaction
3. An open-end credit plan (HELOCs)
Second, HOEPA does apply [§226.32(a)(1)] to a consumer credit transaction that is secured by the consumer's principal dwelling and in which either:
1. The annual percentage rate at consummation will exceed by more than 8 percentage points for first-lien loans, or by more than 10 percentage points for subordinate-lien loans, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or
2. The total points and fees payable by the consumer at or before loan closing will exceed the greater of:
a) 8 percent of the total loan amount (loans > $6,375.00); and
b) $510 (loans < $6,375.00. This figure is for 1-1-05 and shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index.)
[Editors' Note: For 2006, the trigger amount increased from $510 to $528. Beginning 1/1/2007, it will be $547. Consult Supplement I to Regulation Z, Commentary on Section 226.32(a) for the most current value.]
Thus, if you have a consumer purpose refinance, home equity or home improvement loan, secured by the borrower’s principal dwelling and either 1 or 2 from above are met, this loan is subject to the HOEPA requirements.
To help you with the APR Test and the Points and Fees Test, you may wish to download a free "HOEPA Spreadsheet" from our website.
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