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#84290 - 06/02/03 04:05 PM
HOEPA - Reportable even when a non-borrowers......
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Gold Star
Joined: Feb 2002
Posts: 461
Mississippi River Valley
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We have a loan where the borrower is wanting to use his parents home as collaterol. The parents are not co-signers, simply pledging their home. We've run the calculation through the worksheet, and it comes up as a high cost loan. Since this is their primary residence on the line, would this be considered a HOEPA reportable loan?  Thanks for any shared opinions.
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How long a minute is depends on what side of the bathroom door you're on.
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#84291 - 06/02/03 04:17 PM
Re: HOEPA - Reportable even when a non-borrowers......
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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This is a good question and one I haven't seen before.
Here's by opinion. No it's not HOEPA. The Father and Mother are not consumers for the purpose of HOEPA under the Reg. Z definition.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#84292 - 06/02/03 04:25 PM
Re: HOEPA - Reportable even when a non-borrowers......
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10K Club
Joined: Jul 2001
Posts: 83,393
Galveston, TX
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I disagree, as this transaction would be rescindable:
226.31(e)"...If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation. If the transaction is rescindable under Sec. 226.15 or Sec. 226.23, however, the disclosures shall be made to each consumer who has the right to rescind. "
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#84293 - 06/02/03 04:50 PM
Re: HOEPA - Reportable even when a non-borrowers......
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Randy, I agree. I looked at the definition under 226.2 and realized ROR would apply, but by looking at 226.32 I wasn't appling that to the HOEPA disclosure. My mistake, I didn't look at 226.31. or take into account that all persons subject to ROR are to receive the "material" disclsoures.  (oh well it's Monday  )
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The opinions expressed are mine and they are not to be taken as legal advice.
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#84294 - 06/02/03 05:57 PM
Re: HOEPA - Reportable even when a non-borrowers......
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Anonymous
Unregistered
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Dan, I think your first answer was correct. The loan is not subject to Section 32 because the father and mother are not consumers for purposes of Section 32. The credit is not being extended to them. They are consumers for RoR purposes, but being subject to the RoR doesn't make the loan subject to Section 32.
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#84295 - 06/02/03 06:14 PM
Re: HOEPA - Reportable even when a non-borrowers......
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10K Club
Joined: Jul 2001
Posts: 83,393
Galveston, TX
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Anon R Us - if that is the case, then how do explain footnote 48?
48 The term ``material disclosures'' means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total payments, the payment schedule, and the disclosures and limitations referred to in Sec. 226.32 (c) and (d).
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#84296 - 06/02/03 06:23 PM
Re: HOEPA - Reportable even when a non-borrowers......
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Power Poster
Joined: Apr 2001
Posts: 4,828
Between the lines
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Testing myself here --- the parents have ROR, but not the borrowers (they do not have ownership in the collateral) Right?
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#84297 - 06/02/03 06:26 PM
Re: HOEPA - Reportable even when a non-borrowers......
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10K Club
Joined: Jul 2001
Posts: 83,393
Galveston, TX
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That's correct, the parents have the right of rescission. It would only be logical that since they are pledging their home for a HOEPA loan that they would also receive the disclosures.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#84298 - 06/02/03 06:50 PM
Re: HOEPA - Reportable even when a non-borrowers......
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Power Poster
Joined: Jun 2001
Posts: 8,272
Where the heart is
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I disagree. I do not believe that anyone has ROR, but I do believe the transaction is subject to HOEPA.
Definition of Consumer - 226.2(a)
(11) Consumer means a cardholder or a natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§ 226.15 and 226.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.
The borrower's are not the owners, therefore they do not have ROR. The owners do not live there, so they do not have ROR either.
However, under coverage for HOEPA:
226.32(a)(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: then beings the APR & the Points/Fees test
So you are making a loan to a consumer in which his/her primary dwelling will be taken as collateral. Note - Section 32 does NOT appear to address ownership interest. I don't see anything in the Commentary that would indicate otherwise.
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Regulations are a poor substitute for ethics.
Just sayin'
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#84299 - 06/02/03 06:51 PM
Re: HOEPA - Reportable even when a non-borrowers......
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Anon R US, I have to agree with Randy on this one. My first answer was incorrect as I did not take into account that the parties that have the ROR are also to get all applicable material disclosues. In this case not only the TIL, but also the HOEPA disclosure since the loan exceeds the threshold .
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The opinions expressed are mine and they are not to be taken as legal advice.
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#84302 - 06/02/03 07:07 PM
Re: HOEPA - Reportable even when a non-borrowers......
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Power Poster
Joined: Nov 2000
Posts: 2,701
PA
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I agree with Dan and Randy. The parents are consumers for rescission purposes because their principal residence is being used as collateral. Anyone with the right to rescind also has the right to receive all of the material disclosures which, according to footnote 48, include the HOEPA disclosures.
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Opinions expressed are mine and not necessarily those of my employer.
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#84305 - 06/02/03 07:20 PM
Re: HOEPA - Reportable even when a non-borrowers......
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Anonymous
Unregistered
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Randy, I agree that the Section 32 disclosures are material disclosures, but they need to be provided only if the loan is subject to section 32. They are not required simply because the loan is subject to the right of rescission. My contention is that this loan is not subject to Section 32 because the borrowers are not pledging their primary collateral, and the people who are pledging their primary collateral are not consumers per the definition in 226.2(a)(11): "Consumer means a cardholder or a natural person to whom consumer credit is offered or extended."
That definition includes a natural person who pledges their primary dwelling, but ONLY for purposes of Sections 226.15 and 226.23, NOT for purposes of Section 32. Mom and Dad fit that definition for RoR purposes, but not for Section 32 purposes, therefore, Section 32 does not apply and no Section 32 notice is required.
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#84306 - 06/02/03 07:57 PM
Re: HOEPA - Reportable even when a non-borrowers......
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Power Poster
Joined: Nov 2000
Posts: 2,701
PA
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Anon, you've convinced me. Actually, that's where I started when I first started reading this thread. I thought Dan was correct the first time. And, now I'm back where I started: The loan itself is not a HOEPA loan because the parents (whose principal dwelling will secure the loan) do not meet the definition of consumer for purposes of Section 32. The parents do, however, have the right to rescind, as they meet the definition of consumer for Section 23. If the loan was a HOEPA loan, the parents would have a right to the disclosure, since it is a material disclosure; but the loan is not subject to Section 32, so there is no HOEPA disclosure to give them.
Last edited by Deena; 06/02/03 08:11 PM.
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Opinions expressed are mine and not necessarily those of my employer.
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#84307 - 06/02/03 08:07 PM
Re: HOEPA - Reportable even when a non-borrowers......
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Anon R Us, you make a very convincing argument and as my original answer indicated I agreed with you. But I'm still not re-convinced as all persons (consumers) with the ROR are entitled to all material disclosures and if the loan exceed the threshold would this not make it a high-cost loan where the "consumer" has the opportunity to lose their home. This has not been a good Monday for me.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#84308 - 06/02/03 08:23 PM
Re: HOEPA - Reportable even when a non-borrowers......
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Power Poster
Joined: Jul 2002
Posts: 5,568
New Jersey
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This thread is another scrap of evidence that government regulation is a lot like rubbing two sticks together: a lot more heat than light is generated.  I admire the patience and fortitude that you all display in attempting to determine exactly what some beltway policy wonks meant or intended with their turgid prose (and what the unintended consequences of dueling regulations may be!). I must confess that such patience too often eludes me. Thank you for your brave and unstinting efforts! My respect for you continues to grow with each passing regulation. 
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#84310 - 06/02/03 09:09 PM
Re: HOEPA - Reportable even when a non-borrowers......
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Anonymous
Unregistered
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Well said Deena, and that is my point exactly - you first determine whether the loan is subject to Section 32, and if it is then you worry about who gets the disclosure. As you so eloquently stated, the definition of consumer is only expanded for rescission purposes, not for Section 32 purposes, and for that reason the loan in question is not subject to Section 32.
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#84312 - 06/02/03 09:37 PM
Re: HOEPA - Reportable even when a non-borrowers......
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100 Club
Joined: Dec 2002
Posts: 195
Eastern KY
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Quote:
This thread is another scrap of evidence that government regulation is a lot like rubbing two sticks together: a lot more heat than light is generated.
I agree Kimosabie, the brightness of the flame will not glow very brightly because the author of this section is possibly retarded.
What we have not discussed here is the fact that the two borrowers have been provided the disclosures and have once again been "saved from those awfull predatory lenders". That "truth in Lending" has once again faced the enemy and won! . . . . High Ho Silver, . . . Away!!
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#84313 - 06/02/03 09:47 PM
Re: HOEPA - Reportable even when a non-borrowers......
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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OK, don’t put me through another Monday this week, please.  After re-reading and re-reading and re-reading, I’m going to concede to Anon R Us and Deena. My concession is based on the definition of Consumer Credit and Credit. Consumer Credit is not being offered to the mother and father. §226.32: Requirements for Certain Closed-End Home Mortgages (01/01/02) (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: §226.2: Definitions and Rules of Construction (01/01/97) (11) Consumer means a cardholder or a natural person to whom consumer credit is offered or extended . However, for purposes of rescission under §§226.15 and 226.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest. (12) Consumer credit means credit offered or extended to a consumer primarily for personal, family, or household purposes. (14) Credit means the right to defer payment of debt or to incur debt and defer its payment. I think I'll by-pass the Miller Lite tonight and go straight for the Crown.  
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The opinions expressed are mine and they are not to be taken as legal advice.
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