Answer by Jack Holzknecht: The presence of a "demand" clause does not affect coverage of HOEPA. The law applies to consumer loans secured by a principal dwelling (other than a loan to buy or build a dwelling, a HELOC or a reverse mortgage) that has a high rate or high fees.
Answer by Jay Bruce: I agree with Jack and would add that the due-on-demand clause in your HOEPA loan document needs to comply with the limitations set forth in Reg Z, Section 32(d)(8), which provides that a mortgage transaction subject to HOEPA shall not include the following terms:
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:
(i) There is fraud or material misrepresentation by the consumer in connection with the loan;
(ii) The consumer fails to meet the repayment terms of the agreement for any outstanding balance; or
(iii) 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.
First published on BankersOnline.com 11/1/04