Important new protections for homebuyers

If you’re considering purchasing or refinancing a home this year you should be aware of some important new rule changes. The changes are tied to the Home Ownership and Equity Protection Act (HOEPA), which went into effect at the beginning of the year.

The primary purpose of HOEPA is to provide relief, protection, and counseling to homebuyers with less-than-optimal credit ratings; borrowers whose low scores would make them subject to high-cost mortgages.

What’s a high-cost mortgage?

To understand what a high-cost mortgage is you first have to understand the term average prime offer rate. The average prime offer rate (which we’ll shorten to APOR for simplicity’s sake) is determined by the Federal Reserve Board. Per the Federal Reserve Board’s definition, the APOR is “an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics.” Essentially, that means that the APOR represents the average mortgage loan terms for buyers with healthy credit.

If the first mortgage on your new home is more than 6.5 percentage points higher than the APOR at the time of closing, then that is considered to be a high-cost mortgage and you are entitled to additional protections under HOEPA.

On a second mortgage (Home Equity Loan), or a primary mortgage below $50,000, if your interest rate is 8.5 percentage points higher than the APOR, then you would also have certain protections under HOEPA.

What protections does HOEPA offer?

The hope behind HOEPA is that homebuyers with poor credit will be able to achieve their dreams of homeownership without being set-up to fail by high interest rates, exorbitant fees, and a lack of sufficient financial training. In that spirit, HOEPA limits or bans many of the fees and charges a high-cost mortgage borrower might once have faced, including:

  • Fees for paying off your loan early
  • Late fees larger than 4 percent of your regular payment
  • Fees for loan modifications for struggling homeowners
  • Fees for receiving a payoff statement
  • Balloon payments near the end of a loan

Your lender must inform you, prior to completing that loan, that the mortgage you are agreeing to is a high-cost mortgage. They must provide you with information, including the terms, costs, and fees associated with the loan.

Additionally, as part of HOEPA, all high-cost mortgage borrowers need to complete homeownership counseling to ensure that they are prepared to successfully manage their new financial responsibilities. MMI is proud to offer that counseling.

MMI provides high-cost mortgage counseling

If you or someone you know is closing on a high-cost mortgage you can complete your required counseling with MMI by calling 866.864.8991. The session lasts about an hour and is designed to provide you with the training and insight needed to successfully manage your new loan or loans.

One requirement of the counseling program is a review of the loan costs associated with the mortgage, so please have your Good Faith Estimate available (you or your lender can fax that document to 866.921.6260 prior to counseling).

Protecting yourself

If you believe that your lender is not following the rules created by HOEPA, please contact that Consumer Financial Protection Bureau at or 855.411.2372.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.