United States
Hong KongHOEPA high-cost thresholds
A mortgage is high-cost under HOEPA if the APR exceeds the average prime offer rate by 6.5 points on a first lien of 50,000 dollars or more, or 8.5 points on a subordinate lien, or if points and fees or prepayment penalties exceed set limits.
HOEPA came into the Truth in Lending Act in 1994 and targets the most expensive end of the market. A loan that trips a trigger becomes a high-cost mortgage and picks up extra obligations. Any one trips it.
The three triggers
- APR - 6.5 percentage points over the average prime offer rate on a first lien of 50,000 dollars or more, 8.5 points on a subordinate lien
- Points and fees - exceeding the applicable limit
- Prepayment penalty - one that runs beyond a set period or exceeds a set amount
Any one of them is enough. They are alternatives, not a set of conditions to be met together.
What changes
Homeownership counseling becomes mandatory before the loan is made, under 12 CFR 1026.34(a)(5). A borrower must speak to a counselor from a list, and the creditor must have that confirmation.
Balloon payments are restricted, prepayment penalties are prohibited, and additional disclosures are required in advance.
From the original TILA section number. If a question mentions a Section 32 loan it is talking about a high-cost mortgage, and the two terms are used interchangeably in older material.
The lien distinction
Six and a half points for a first lien. Eight and a half for a subordinate one.
The subordinate threshold is higher because second liens are riskier and priced accordingly. A question giving you a spread of seven points needs you to know which lien position you are in.
How this differs from a higher-priced mortgage loan
Different rule, different thresholds, different consequences. A higher-priced mortgage loan triggers a mandatory escrow requirement and appraisal rules; a high-cost mortgage triggers counseling and product restrictions.
They are frequently confused and the exam knows it.
Common questions
What makes a loan high-cost under HOEPA?
An APR 6.5 points over the average prime offer rate on a first lien of 50,000 dollars or more, 8.5 points on a subordinate lien, or excessive points and fees or prepayment penalties.
What is a Section 32 loan?
Another name for a high-cost mortgage, from the original TILA section number.
Is counseling required on a high-cost mortgage?
Yes. Homeownership counseling is mandatory before the loan is made, under 12 CFR 1026.34(a)(5).
How is a high-cost loan different from a higher-priced one?
Different thresholds and consequences. Higher-priced triggers mandatory escrow and appraisal rules; high-cost triggers counseling and product restrictions.
Do all three HOEPA triggers have to be met?
No. Any one of them makes the loan high-cost.