The Home Ownership and Equity Protection Act (HOEPA) was originally created in 1994 as an amendment to the TILA, to protect home owners from potentially abusive lending practices in the home-equity lending market. It was later amended in 2002, which are the most recent guidelines that were followed until January 10,2014 when it was amended again under the Dodd-Frank Act.

The rules under HOEPA originally applied to a closed-end home-equity loans (NOT including purchase transactions) which had rates or fees above a specified percentage or amount.  A loan was considered to be a HOEPA loan (aka Section 32 or High Cost Loan) when it had an APR exceeding the rate for Treasury securities with a comparable maturity by more than 10 percentage points, or the points and fees paid by the consumer exceed the greater of 8 percent of the loan amount or $400(based on the per year cost amortized over the loan term).  That $400 was an amount that changed each year base on the Consumer Price Index.

In 2002, the rules were changed due to a significant increase in subprime lending. The trigger for the APR on a first-lien mortgage loan was reduced from 10 percent to 8 percent and remained at 10% for a second-lien. Again the dollar figure that was originally $400 changed every year and in 2002 was $480.  In 2013 the HOEPA dollar amount trigger had increased to $625.

Then in 2014 new changes to HOEPA were added and amended expanding the scope of HOEPA coverage to include purchase-money mortgages, refinances, closed and open-end credit plans (i.e., home equity lines of credit, or HELOCs) and amended HOEPA’s coverage tests. HOEPA rules do not apply to reverse mortgages, second homes, vacation homes, initial construction loans, FHFA loans (ie harp) and USDA loans.

Today a loan is considered to be HOEPA when one of the following occur:

  • The transaction’s annual percentage rate (APR) exceeds the applicable average prime offer rate (APOR) by more than 6.5 percentage points for most first-lien mortgages, or by more than 8.5 percentage points for a first mortgage less than $50,000.
  • The transaction’s APR exceeds the applicable APOR by more than 8.5 percentage points for subordinate or junior mortgages.
  • The transaction’s points and fees exceed 5 percent of the total transaction amount or, for loans below $20,000, the lesser of 8 percent of the total transaction amount or $1,000.
  • The adjusted statutory fee trigger of $632. (Based on the per year cost amortized over the loan term)
  • A prepayment penalty for more than 36 months after consummation or account opening, or an amount more than 2 percent of the amount prepaid.

If you do a loan that meets any one of the above triggers then you must give additional disclosures, avoid certain loan terms, and ensure the consumer receives additional protections, including homeownership counseling. To learn the calculation formulas, disclosures, terms, protections and counseling required, review the compliance guide available on the CFPB website at

As you can see, there are many changes to High Cost or Section 32 loans also known as loans that fall under the Home Ownership and Equity Protection Act.  As with all mortgages laws it’s important to stay up to date with new laws and changes to old ones.  To help you do this the CFPB has compliance guidesand tables at

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