HOEPA

Other than the negative connotations and the added disclosures that accompany making Section 32 loans, are there any other requirements or pitfalls that one should be aware of if we make such a loan occasionally?

Be sure there is nothing in the credit file that could be construed as discriminatory. Don't give the examiners any reason to believe you singled this person out for a higher rate or fees for any of the reasons in Reg B or Fair Housing.

You need to be aware of the limits or outright prohibition on certain terms, such as balloon payments, an increase in post-default interest rates, negative amortization, and prepayment penalties. In addition, a number of states have additional requirements for these loans, so check state law.

Ted is correct. See section 226.32(d) of TIL. A loan, subject to this section, cannot contain any of the following features:
1. Balloon payment. For a loan with a term of less than five years, a payment schedule with regular periodic payments that when aggregated do not fully amortize the outstanding principal balance.
This limitation does not apply to bridge loans with a maturity of less than 1 year.

2. Negative amortization. A payment schedule with regular periodic payments that causes the principal balance to increase.

3. Advance payments. A payment schedule that consolidates more than two periodic payments and pays them in advance from the proceeds.

4. Increased interest rate. An increase in the interest rate after default.

5. Rebates. A refund calculated by a method less favorable than the actuarial method (as defined by section 933(d) of the Housing and Community Development Act of 1992, 15 U.S.C. 1615(d)), for rebates of interest arising from a loan acceleration due to default.

6. Prepayment penalties. Except as allowed under paragraph (d)(7) of this section, a penalty for paying all or part of the principal before the date on which the principal is due. A prepayment penalty includes computing a refund of unearned interest by a method that is less favorable to the consumer than the actuarial method, as defined by section 933(d) of the Housing and Community Development Act of 1992.

This limitation does not apply if:
a. The penalty can be exercised only for the first five years following consummation;
b. The source of the prepayment funds is not a refinancing by the creditor or an affiliate of the creditor; and
c. At consummation, the consumer’s total monthly debts (including amounts owed under the mortgage) do not exceed 50 percent of the consumer’s monthly gross income, as verified by the consumer’s signed financial statement, a credit report, and payment records for employment income.

7. Due-on-demand clause. A demand feature that permits the creditor to terminate the loan in advance of the original maturity date and to demand repayment of the entire outstanding balance, except in the following circumstances:

a. There is fraud or material misrepresentation by the consumer in connection with the loan;
b. The consumer fails to meet the repayment terms of the agreement for any outstanding balance; or
c. There is any action or inaction by the consumer that adversely affects the creditor’s security for the loan, or any right of the creditor in such security.

Look out for state and local predatory lending statutes and ordinances.

We never did HOEPA before. However, with the new % and the new guidelines, we do fall into the HOEPA loan catagory. I read practically all I can regarding HOEPA and know about the disclosures and have a chart to see if a loan qualifies.
So far I think our bank is going to do the disclosure bit.
However, is there annual Federal reporting and do we have to have a special sign posted? We have the HUD sign posted, if we do need a HOEPA sign posted, where do I find one? Also, can we write the qualifying loans through our Mtg dept which would give them daily accurals on the ins.
We are planning to continue selling single premium life A/H.
Any suggestions? Lost in the Sauce!!!

That single premium accident and health insurance will probably put most of your loans into a HOEPA status. Better brush up.............and train your staff.......... FAST!

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However, is there annual Federal reporting and do we have to have a special sign posted?

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No.

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We have the HUD sign posted, if we do need a HOEPA sign posted, where do I find one?

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Don't need one. See answer to Q#1.

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Also, can we write the qualifying loans through our Mtg dept which would give them daily accruals on the ins.

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Yes. But it still might be a HOEPA loan.