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#236288 - 08/24/04 09:59 PM
HOEPA Help...!
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Anonymous
Unregistered
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I need your help. During a loan review I found a loan that was made six months ago for home improvement purposes secured by the borrower's dwelling. The bank inadvertently left out the fee paid to the bank’s attorney when calculating the spread for HOEPA. I found that this loan should be a HOEPA loan due to APR overage. What do we need to do? The officer has asked that if we back out the attorney fee and apply it to principal, thus lowering the APR to get it out of HOEPA range, will this fix the problem. I know we may have recession, refinance, demand feature problems also. What is suggested to correct this BOO BOO… Thank you 
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#236289 - 08/24/04 10:09 PM
Re: HOEPA Help...!
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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What was the attorney fee for? Is it for a service exempt under 226.4?
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The opinions expressed are mine and they are not to be taken as legal advice.
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#236290 - 08/25/04 01:23 PM
Re: HOEPA Help...!
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Anonymous
Unregistered
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The charge was for title work done by the bank's attorney.
226.4 says that it would be a finance charge if the bank keeps a portion. In this case we do. (2) Special rule; closing agent charges. Fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor: (iii) Retains a portion of the third-party charge, to the extent of the portion retained.
Right?
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#236291 - 08/25/04 01:34 PM
Re: HOEPA Help...!
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Title examination charges are excluded from the finance charges under 226.4. IMO, the portion paid to the attorney for the title work would be excluded and the portion the bank retains would be included.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#236292 - 08/25/04 06:30 PM
Re: HOEPA Help...!
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Anonymous
Unregistered
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It appears that the portion retained by the bank has caused the APR to increase to the point that it had become HOEPA.
How do we fix this?
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#236293 - 08/25/04 08:19 PM
Re: HOEPA Help...!
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Were these fees included in the your TIL disclosure accurately? IOW, were they calculated into the APR and just left off the HOEPA calculation?
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The opinions expressed are mine and they are not to be taken as legal advice.
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#236294 - 08/25/04 08:22 PM
Re: HOEPA Help...!
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Anonymous
Unregistered
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YES 
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#236295 - 08/25/04 08:32 PM
Re: HOEPA Help...!
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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If they were included in the APR calculation then your APR would be accurate. I'm now confused on your statement about them not being included in the in the APR test for the rate spread. The rate spread calculation is simply your APR minus the comparable Treasury Security rate. Are we actually talking the fee and charges test?
Last edited by dpersfull; 08/25/04 08:33 PM.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#236296 - 08/25/04 11:20 PM
Re: HOEPA Help...!
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Anonymous
Unregistered
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The HOEPA test was done using inaccurate data. The APR calculation was an estimate and these fees were left off. The HOEPA test was performed showing a result of "Non-HOEPA" but then after the loan was closed we discovered that these fees were calculated in the loan's new APR. Our mistake was not re-calculation HOEPA status. We messed up and missed this one. Procedure changes on the horizon for sure. 
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#236297 - 08/26/04 12:16 PM
Re: HOEPA Help...!
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Platinum Poster
Joined: Apr 2003
Posts: 933
New York State
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Quote:
The HOEPA test was done using inaccurate data. The APR calculation was an estimate and these fees were left off. The HOEPA test was performed showing a result of "Non-HOEPA" but then after the loan was closed we discovered that these fees were calculated in the loan's new APR. Our mistake was not re-calculation HOEPA status. We messed up and missed this one. Procedure changes on the horizon for sure.
I'd like to respond with a question (sorry). I think that this boils down to, what are the ramifications of not providing the required HOEPA disclosures, when discovered after the fact. My opinion is that this is much like rescission, it can't be fixed. Should this banker do anything to "fix" the non-disclosure?
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#236298 - 08/26/04 12:32 PM
Re: HOEPA Help...!
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Power Poster
Joined: Dec 2000
Posts: 3,455
The Pennant Race
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The HOEPA disclosures are "material" disclosures for purposes of rescission (see footnote 48 in 226.23). If you have not provided them, then your have extended the rescission period on your loan has been extended to three years.
Another risk that you incur here is the potential of being cast as a "predatory" lender by the plaintiff's bar, community groups, etc. There is no way to quantify the probability or potential loss from this possibility (I don't think it's high), but the prospect wouldn't make me very happy if I were your CEO.
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#236299 - 08/26/04 01:06 PM
Re: HOEPA Help...!
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Platinum Poster
Joined: Apr 2003
Posts: 933
New York State
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Quote:
The HOEPA disclosures are "material" disclosures for purposes of rescission (see footnote 48 in 226.23). If you have not provided them, then your have extended the rescission period on your loan has been extended to three years.
Another risk that you incur here is the potential of being cast as a "predatory" lender by the plaintiff's bar, community groups, etc. There is no way to quantify the probability or potential loss from this possibility (I don't think it's high), but the prospect wouldn't make me very happy if I were your CEO.
I agree with everything you have said. Just nice to hear it from a compliance peer. We have had a couple of installment loans, secured by mobile homes, where the lender wrote single premium credit insurance, putting the loan in the high fee category. Although we have instructed them not to finance the insurance, it happens anyway. We've identified the accounts, done training, etc. But it has been my opinion that the damage is done, can't be fixed. Thanks again for confirming this.
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#236300 - 08/26/04 01:31 PM
Re: HOEPA Help...!
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Anonymous
Unregistered
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Would refinancing the loan help? If the customer agrees to this? Or should we just leave it alone and accept the three year rescission?
Thank you all...!
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#236301 - 08/26/04 01:42 PM
Re: HOEPA Help...!
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Diamond Poster
Joined: Jul 2002
Posts: 1,678
United States
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I'd be careful with refinancing the loan. If your state has APL (anti-predatory lending) legislation, you may run into "flipping" if you do that. Plus, getting the customer to refinance to cover up a bank mistake won't look so good in court.
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#236302 - 08/26/04 01:44 PM
Re: HOEPA Help...!
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Anonymous
Unregistered
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Quote:
Would refinancing the loan help? If the customer agrees to this? Or should we just leave it alone and accept the three year rescission?
Thank you all...!
My opinion on this is to let it go, rather than risking an alert to the customer by requesting a re-write. The violation has occured. Re-writing would make it "disappear" from the examiners/auditors, but accomplishes little else other than annoying the customer. Besides, the reality is that very few customers are aware that the right to cancel would now extend to three years.
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