WASHINGTON (11/9/12)--The Consumer Financial Protection Bureau (CFPB) is planning to expand its definition of finance charge for mortgages, and this expanded finance charge definition, if adopted, could subject more credit union loans to additional limits and requirements under the Home Ownership Equity Protection Act (HOEPA)--referred to as "high-cost" loans--the Credit Union National Association (CUNA) said in a comment letter.
Under the CFPB's related finance charge definition proposal, lenders would be required to include most up-front costs associated with a mortgage in the finance charge disclosed to borrowers. Loan charges or fees would need to be included in the finance charge, but late fees, delinquency or default charges, seller's points, some escrow payments and most insurance premiums would not need to be included.
Since the finance charge is a large part of the annual percentage rate (APR) calculation, an expanded definition of "finance charge" would result in an expanded or increased APR. An increase in the APR is likely to cause more mortgage loans to meet or exceed HOEPA's APR coverage thresholds, CUNA Assistant General Counsel Luke Martone noted.
The CFPB has proposed two new thresholds for determining whether a given loan would or would not be subject to HOEPA coverage. The agency will likely choose one of these two thresholds for the final rule.
Martone said CUNA has serious concerns with both alternatives the CFPB has offered, and suggested a third approach that blends elements of the two CFPB approaches.
If adopted by the CFPB in the final rule, the CUNA alternative approach could mitigate for credit unions the unintended increase in HOEPA coverage that would result from an expanded finance charge, he said.
For more on the CFPB HOEPA thresholds, and the CUNA comment letter, use the resource link.