Has anyone had to cure a HOEPA violation under the new rules yet? We had a loan that was closed that was HOEPA, but the borrower did not receive a disclosure and did not participate in homeownership counseling. The loan ended up being HOEPA because it was around $20 over the points and fees limit. That's what happens when you do a $4,000 purchase money loan.

Anyway, was hoping for some advice on how to cure. A disclosure can be made, but the homeownership counseling seems irrelevant at this point and would just be burdensome to the borrower. Can we refund the borrower the amount of the fee overage and not consider a HOEPA loan anymore?

The bell has been rung. You cannot un-ring it.

However [I add several days later], keep reading this thread. The answer you're looking for is posted on June 23.

Well, we can offer the borrower the choice of either making the loan satisfy all of the high-cost mortgage requirements or changing the terms of the loan so that it is no longer a high-cost mortgage.

I wasn't sure if satisfying the high-cost mortgage requirements meant to do any of the pre loan closing requirements or just adjust the loan for the restrictions (such as no financied fees that were included in points and fees test, 4% late charges, etc).

To change the terms of the loan so that it is no longer a high-cost mortgage, I guess we would actually have to do a modification. But that seems a little much in our case where we are only a few dollars over the points and fees limit. My thought was a possible refund of those fees to the borrower, but then I wondered if we could apply to loan since the fees were financed. I was hoping to just be able document our actions in the loan file instead of requiring the borrower to sign any modification documents.

Any advice would be appreciated. Thanks.

You can't cure the violation once the loan closed. The only thing you can do is refund the necessary fees or reduce the rate to get it out of HOEPA. That will most likely appease the examiners but it does not cure the violation for closing the loan without providing the required disclosures. As John said, you can't un-ring that bell.

Thanks. Excuse my use of the word cure, as I know it's not in the regulation, I should have used correction. I'm just trying to find that line where "will not be deemed to have violated such requirement" would be true.

I'm just trying to find that line where "will not be deemed to have violated such requirement" would be true.

Unfortunately under current rules that is not possible once the loan closes. However the fees refund or rate reduction would be strong mitigating factors for the violation to only be mentioned vs. being cited, unless you have a pattern of this happening. One out and done you should be fine. If they find 3 or more you most likely won't be.

(h) Corrections and unintentional violations. A creditor or assignee in a high-cost mortgage, as defined in § 1026.32(a), who, when acting in good faith, failed to comply with any requirement under section 129 of the Act will not be deemed to have violated such requirement if the creditor or assignee satisfies either of the following sets of conditions:

(1) (i) Within 30 days of consummation or account opening and prior to the institution of any action, the consumer is notified of or discovers the violation;

(ii) Appropriate restitution is made within a reasonable time; and

(iii) Within a reasonable time, whatever adjustments are necessary are made to the loan or credit plan to either, at the choice of the consumer:

(A) Make the loan or credit plan satisfy the requirements of 15 U.S.C. 1631-1651; or

(B) Change the terms of the loan or credit plan in a manner beneficial to the consumer so that the loan or credit plan will no longer be a high-cost mortgage.

(2) (i) Within 60 days of the creditor's discovery or receipt of notification of an unintentional violation or bona fide error and prior to the institution of any action, the consumer is notified of the compliance failure;

(ii) Appropriate restitution is made within a reasonable time; and

(iii) Within a reasonable time, whatever adjustments are necessary are made to the loan or credit plan to either, at the choice of the consumer:

(A) Make the loan or credit plan satisfy the requirements of 15 U.S.C. 1631-1651; or

(B) Change the terms of the loan or credit plan in a manner beneficial to the consumer so that the loan or credit plan will no longer be a high-cost mortgage

Thanks, Raitchjay. For those of you still wondering where that comes from, it's 1026.31(h), which includes a lot of important little nuggets that apply to other sections in Subpart E of the regulation.

I didn't realize that section went into affect already. I was thinking 2015 was the effective date that's why I referenced "current" rules above.

Sorry for the mis-information.

15 USC 1631-1651 has a lot of stuff going on and there is no Official Interpretation to 12 CFR 1026.31(h). So, when it is saying here, "Make the loan or credit plan satisfy the requirements of 15 U.S.C. 1631-1651," what exactly is that referring to? Is this just basically make it so that it is not a High-Cost mortgage? If so, how is that different from "Change the terms of the loan or credit plan in a manner beneficial to the consumer so that the loan or credit plan will no longer be a high-cost mortgage?"

Would the difference be, for example, that in the "Make the loan satisfy the requirements," language this relates to refunding fees when it is the Points and Fees trigger? Whereas, the "Change in Terms" refers to when you need to get the interest rate under the High-Cost threshold?

Since 1639 deals with the HOEPA requirements, i think what it's saying is, the consumer has 2 choices once notified by the bank:

1) Accept all the HOEPA disclosures they should have gotten but didn't; or

2) Have the bank change the terms of the loan so that it is no longer a HOEPA loan.

I would think 2 would be their option 99% of the time.

That's how i'm reading it anyway.

Can you change the terms of the loan to reduce the fees? I don't really see how that could be done. It makes sense as a "fix" to exceeding the interest rate threshold, but what to do when the Points and Fees calculation is what made it a HOEPA?

The creditor can obviously refund the fees, but I don't see where that is mentioned anywhere as a correction of an unintentional violation.

(B) Change the terms of the loan or credit plan in a manner beneficial to the consumer so that the loan or credit plan will no longer be a high-cost mortgage.

That to me is where it is mentioned. If you refund the fees, and the fees are what made it a HOEPA loan, then i think refunding them fixes it. If for example there was a $500 origination fee that pushed it over the points and fees threshold, and you refund that fee, the terms of the loan no longer make it a high-cost mortgage.

Of course, corrected disclosures (a CD for example) would need to be given to show the refund.

Yeah, I can potentially see that, it's just there aren't really any changing of terms being done, like would take place with a rate reduction. The creditor is just giving a refund. Hopefully, you are correct though, it would sure be a lot simpler if that is the case.

I think the fees charged with a loan area part of the "terms" of a loan. I think refunding a fee changes those terms.

Thank you for your input. I can see that potentially holding as well. Unfortunately, I'm only 50/50 on it, or a bit less even, lol, and I don't like hanging my hat on a 50/50.

If points and fees can make a loan a HOEPA loan, and the instructions are basically to 'change the loan so it's no longer a HOEPA loan'....i don't see how changing the factor that made it a HOEPA loan (refunding fees) is a gray area. But hey, that's just me.

FWIW, I agree RJ.

I just refer to the literal language which says "change the terms of the loan or credit plan." At the point in time after the loan is closed, there is no changing of any "term" of the loan in this case. You are just refunding a cost/fee of the loan. Might just be semantics on my part, but to me, a cost/fee isn't a term of the loan that can be changed after the fact. But, I understand your point. Thank you both for your input.

I look at it this way: you tell an applicant what the interest rate, number of months, etc. is for a loan they are applying for. You also tell them that they will have to pay an appraisal fee, origination fee, credit report fee, flood determination fee, title report fee, etc. If the applicant hears all that and says "i don't want to pay all of those fees....no thanks", is that not them withdrawing because they didn't like a loan term? You won't make them the loan unless they pay the fees.....they don't want to pay the fees.....so i think that equates to those fees being a "term" of the loan. "You want this loan...pay these fees."