HOEPA and Truth in Lending Laws

Mortgage loan paperwork can be more than confusing. Even the most fastidious among us may misunderstand or miss an important loan term. There is APR to consider, possible balloon payments, regular payments owed, maximum payments allowed, variable rates, and the list goes on. These details must be legally disclosed in documentation three days prior to finalizing the loan. Furthermore, there are important mortgage laws to protect borrowers against unfair and illegal lending practices that you should be familiar with if you face foreclosure or are under pressure from your lender.

The Home Ownership and Equity Protection Act (HOEPA) and Truth in Lending Act (TILA) are designed to help you fight foreclosure. TILA applies to all residential mortgage loans, and Truth in Lending is actually a disclosure statement that requires lenders to provide borrowers with full transparency regarding costs upfront so they can comparison shop. Under TILA regulations, you have the right to retroactively cancel a loan for up to three days after agreeing to it, without losing money.

The new rules under TILA go to great lengths to protect borrowers against predatory lending practices. The most significant consumer-protecting rule deals with prepayment penalties. Prior to 2008 when TILA was instituted, lenders would often slap on fees that borrowers would have to pay in the event they decided to refinance or sell their homes within a certain number of years. The new rules forbid prepayment penalties on any loan where a monthly payment can change in the first four years. This is good news for consumers; however, borrowers should expect stricter and more comprehensive financial checks regarding their ability to repay.

HOEPA, mostly deals with second mortgages, while TILA covers initial mortgages, and specifically regulates loans that have unusually high interest rates or high associated costs and fees. A loan qualifies under HOEPA if:

  1. The APR on a first mortgage is more than 8 percentage points above the rates for comparable Treasury securities.
  2. The APR on a second mortgage is more than 10 percentage points above the rates for comparable Treasury securities.
  3. The fees paid by the borrower are more than the larger of these two: 8% of the total loan amount or $583 (the loan-fee bar).

If you suspect that a lender has violated a law designed to protect you from unfair lending practices, call McFarlin Law so we can help you determine the best approach. You have rights, and you have options. A HOEPA violation may allow you to recover statutory damages, court costs and other fees. In some cases, it is possible to rescind a loan altogether if you can prove that the proper disclosure information wasn’t provided or an illegal term was added as a loan provision. You don’t have to fight predatory lending practices alone. We’re here to help.