As you all know from my past posts, I'm rather dense about some things, but this HOEPA stuff is really making me feel like an idiot! When we talk about the total points and fees not exceeding 8% of the loan amount or $480, I need some clarification. If the points and fees (including credit life insurance) exceed $480, does that automatically make it a HOEPA loan? Or must it exceed $480 AND exceed 8% of the loan amount?

We just received a fax from one of our insurance vendors summarizing the HOEPA changes, and the fax states that it must exceed both. HOWEVER, the fax states some other things that I question, so do not take this as anything more than compliance gossip. I'll definitely be watching this thread for responses from the HOEPA gurus.

226.32 (a)(ii) The total points and fees payable by the consumer at or before loan closing will exceed the greater of 8 percent of the total loan amount, or $400; the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1.

The law says the GREATER of 8%... OR $400. I could have a loan that has $500 in points and fees, but only represent 1% of the loan amount and still be ok.

Dean is correct. It is the greater of that matters in this or there would be HOEPA loans all over the place even on very low cost, large loans.

OK, so let's say I've got three loans. The interest rates are fine on all three, so that's not a factor. Which if these three are HOEPA loans?

1. $300 fees=10% of the loan amount
2. $500 fees=5% of the loan amount
3. $500 fees=10% of the loan amount

I'm betting #1 and #3. Is that right?

Yes...1 & 3 would be my choices as well.

Ok, it's my turn to be dense I guess. I think only #3 would qualify as HOEPA. In #1 the loan amt must be $3000, so the greater of 8% of $3000 or $480 would be $480, the fees of $300 do not exceed that. Am I figuring this correctly?

I chose #1 because it exceeds 8% of the amount financed. Is that not correct?

However, the 8% was not greater than $480. At some point, you reach a bottom level cost that has to be charged on a dwelling related loan (appraisal fee, title fee, flood hazard verification, what-have-you.)

I have yet to come across a request for $3,000 that would be secured by a dwelling. The closest I've seen was a $5,000 to be secured by a mobile home.

We have small loans secured by homes all the time, and on some of these the loan officer has sold credit life and/or A&H, which Oct. 1 will be included. So now I'm more confused than ever. You're saying that Loan #1 should not be HOEPA because even though the fees are 10% of the loan, it's not greater than the $480?

The regulation states the fees test is the GREATER of the percentage or the dollar amount. I suppose when you think about it, there isn't AS great of a concern that a $3,000 loan would be Predatory, or at least not to the same extent as, say a $10,000 loan.

Perhaps someone realized that there ARE costs associated with a dwelling secured loan no matter how small the loan amount, and what would be the point of penalizing a lender that was accomodating very small credit requests?

Caution, however, you best check any state law issues that might apply to you. Perhaps some areas removed the "greater" wording in the test.

I just realized that the "points and fees" test is only ONE prong of the HOEPA test. The other is the APR test. So, if all of that $300 is a Finance Charge, you need to look at what it will do to your APR - and then compare the APR with the yield on Treasury securities of a comparable maturity as of the 15th of the month preceeding the month in which you took the application. (Except on alternate Tuesdays of months ending in "Y"... )

If the APR exceeds that yield by 8 percent on a 1st Lien, or 10 percent on a second lien (or 8 percent regardless here in fruit-and-nut-CaliforniaLand...), then you've got a HOEPA loan.

I used the HOEPA worksheet available in Bankers Tools, and it showed #1 and #3 as being HOEPA loans. I skewed the APR so that it wasn't a factor.

mmason & Bonnie M are correct. #1 is NOT a HOEPA loan because of the minimum threshold set by the regulation. Go back to Dean's posting. For loans <$6000, the total fees must exceed $480 (in 2002). In subsequent years, this threshold will increase.