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Comp Blog

NCUA highlights the new consumer protections for high cost mortgages

By: Danielle Wright

CommentTuesday - January 14, 2014

NCUA issued a Regulatory Alert summarizing CFPB’s new consumer protections for high-cost mortgages.  This is the HOEPA rule that many of you have been reviewing over the past year preparing for the January 10, 2014 effective date.  If any of the information in the Alert is new to you – we recommend you read CUNA’s CompNOTES on the new HOEPA rules to ensure you understand the new compliance requirements.

5 things NCUA wants you to know:

  • 1.The new rule expands the types of loans subject to HOEPA to include purchase-money mortgage loans and HELOCs, in addition to refinancings and closed-end home equity loans.  
  • 2.There are three HOEPA coverage tests to determine whether a loan is a “high-cost mortgage.”  (a) APR test: if the APR exceeds the average prime offer rate for a comparable transaction by more than (i) 6.5% for a first lien; (ii) 8.5% for a first lien loan less than $50,000 and secured by a dwelling that is personal property; or (iii) 8.5% for subordinate liens.  (b) Points & Fees test: if the points and fees exceed (i) 5% of the total loan amount for loans of $20,000 or more, or (ii) for loans less than $20,000, the lesser of: 8% of the loan amount or $1,000. (c) Prepayment penalty test: if the credit union can charge a prepayment penalty (i) more than 36 months after consummation or account opening, or (ii) greater than 2% of the amount prepaid.      
  • 3.New disclosure information: The written disclosure required at least three business days before loan closing (or account opening) must: (a) inform the member that the loan is not effective until the transaction is closed or account opened; (b) explain the consequences of default; (c) disclose loan terms, such as APR, amount borrowed, and monthly payments; (d) in the case of variable-rate loans, explain the maximum monthly payment that might be required for a variable-rate loan.  
  • 4.Restrictions or prohibitions on certain loan features, such as balloon payments, prepayment penalties, due-on-demand clauses, recommending default on existing loan, modification fees, late fees, payoff statement fees, financing of points and fees, and loan structuring.  
  • 5.Ability to repay: The HOEPA rule requires you to determine a member’s ability to repay a high-cost mortgage before closing a loan or opening an account. For closed-end, you must comply with the ATR/QM rules. Since the ATR/QM rule does not apply to HELOCs, the HOEPA rule requires you consider a member’s: (a) current and reasonably expected income or assets; and (b) current obligations, including any mortgage-related obligations such as property taxes, required insurance premiums, community association fee, ground rent, and lease payments.  

For more information see NCUA’s Regulatory Alert  No: 14-RA-02


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