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#366784 - 06/02/05 12:19 PM Business Purpose and HOEPA
bgehres Offline
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Joined: Mar 2005
Posts: 126
Is a business purpose loan to purchase construction equipment secured by the owner's principal dwelling subject to HOEPA? Because HOEPA is part of Reg Z does it apply to business purpose loans?

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Lending Compliance
#366785 - 06/02/05 12:55 PM Re: Business Purpose and HOEPA
Darty Offline
Member
Joined: Oct 2003
Posts: 82
CT
It's my understanding that HOEPA only applies to 1st, 2nd mtg's, Home Equity and HELOCS with ROR. Since commercial loans when secured by the borrowers residence do not require ROR I have not reported them as HOEPA Loans.

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#366786 - 06/02/05 01:05 PM Re: Business Purpose and HOEPA
GreatBlue Offline
Diamond Poster
GreatBlue
Joined: Feb 2003
Posts: 2,362
Colorado
If Reg. Z does not apply, neither does HOEPA.
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Opinions are mine and not necessarily my employer's.

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#366787 - 06/02/05 01:41 PM Re: Business Purpose and HOEPA
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,416
Bloomington, IN
The ROR has nothing to do with HOEPA. A consumer purpose no-cash out refinance is not subject to the ROR, but it would be subject to HOEPA and the other provisions of Reg. Z.

HOEPA is triggered by a provision of Reg. Z, and as GB said, if Reg. Z does not apply then none of its provisions apply.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#366788 - 06/02/05 01:57 PM Re: Business Purpose and HOEPA
bgehres Offline
100 Club
Joined: Mar 2005
Posts: 126
That's what I thought, thanks for confirming that for me.

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#366789 - 06/02/05 06:33 PM Re: Business Purpose and HOEPA
Darty Offline
Member
Joined: Oct 2003
Posts: 82
CT
A consumer purpose no cash out refinance is subject to ROR if you are not the original creditor
a) Consumer's right to rescind. (1) In a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction, except for transactions described in paragraph (f) of this section.47
(f) Exempt transactions. The right to rescind does not apply to the following:
(1) A residential mortgage transaction.
(2) A refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer's principal dwelling. The right of rescission shall apply, however, to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.
(3) A transaction in which a state agency is a creditor.
(4) An advance, other than an initial advance, in a series of advances or in a series of single-payment obligations that is treated as a single transaction under Sec. 226.17(c)(6), if the notice required by paragraph (b) of this section and all material disclosures have been given to the consumer.
(5) A renewal of optional insurance premiums that is not considered a refinancing under Sec. 226.20(a)(5).
The only exempt transactions from HOEPA are residential mortgage transaction, reverse mortgages and open-end, unless you are the original creditor in a refinance every other kind of closed end home mortgage transaction would require a ROR (what are the odds?)

Definition:
(24) Residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling.
Sec. 226.32 Requirements for certain closed-end home mortgages.

(a) Coverage. (1) (a) Coverage. (1) Except as provided in paragraph (a)(2) of this section, the requirements of this section apply to a consumer credit transaction that is secured by the consumer's principal dwelling, and in which either:
(i) 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
(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.

(2) This section does not apply to the following:
nbsp; (i) A residential mortgage transaction.
(ii) A reverse mortgage transaction subject to Sec. 226.33.
(iii) An open-end credit plan subject to subpart B of this part.

So that is why I say anything that anything that requires a ROR would be subject to HOEPA (except as listed above) and commercial transactions are not subject to.

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#366790 - 06/02/05 08:06 PM Re: Business Purpose and HOEPA
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Dan's point was that the logic that "if RofR applies so does HOEPA" is not valid. RofR applies to HELOC, but HOEPA doesn't. As Dan pointed out, if you have a refinance (same creditor) with no new money, RofR doesn't apply, but HOEPA does.

I agree that there is a strong correlation between the two, but they are two separate requirements.
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David Dickinson
http://www.bankerscompliance.com

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