HOEPA LOANS MANDATORY COMPLIANCE DATE IS OCTOBER 1, 2002
October 1, 2002 was the mandatory compliance date for the Federal Reserve Board’s final rule effective December 20, 2001, revising Section 226.32 of federal Regulation Z, which implements the Home Ownership and Equity Protection Act of 1994 (“HOEPA”). The revisions broaden the scope of Section 226.32 by lowering the annual percentage rate trigger on first lien loans from more than 10% to more than 8% above the yield on Treasury Securities with comparable periods of maturity. Additionally, the total points and fees trigger (adjusted to $480 for 2002 and $488 for 2003) are revised. The term “points and fees,” which previously included (i) all finance charges (except interest or time price differential); (ii) broker’s fees and (iii) charges under Section 226.4(c)(7) (closing costs) unless reasonable and paid directly or indirectly only to a non‑affiliated third party, has been expanded to include those amounts paid at or before closing, whether paid in cash or financed, for optional credit life, accident, health, or loss‑of‑income insurance and other credit‑protection products such as debt‑cancellation coverage.
The amendments limited refinancing of HOEPA loans within the first year with another HOEPA unless the refinancing is “in the interest” of the borrower. Additional changes include: (i) strengthening the prohibition against making HOEPA loans without regard to the borrower’s ability to repay by adding a presumptive violation if the creditor has not documented the borrower’s repayment ability; (ii) limiting due‑on‑demand provisions and (iii) prohibiting the structuring of a home equity loan as “open‑end” unless the Regulation Z definition of “open‑end” is met.