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Truth in Lending: 9.6.11.9 Charging Modification and Deferral Fees

The Dodd-Frank Act bans the charging of modification and deferral fees in HOEPA loans. Specifically, it provides that a creditor, successor in interest, assignee, or any agent of any of the above, may not charge a consumer any fee to modify, renew, extend, or amend a HOEPA loan, or to defer any payment due under the terms of such mortgage.930

Truth in Lending: 9.6.11.10 Requiring Pre-Loan Counseling

The Dodd-Frank Act requires housing counseling for homeowners receiving HOEPA loans.931 A creditor is prohibited from making a HOEPA loan without first receiving certification from a HUD-approved housing counselor, or at the discretion of the HUD Secretary, a state housing finance authority, that the consumer has received counseling on the advisability of the mortgage.

Truth in Lending: 9.6.11.11 Late Fees

Effective for loans for which applications were received on or after January 10, 2014, Regulation Z limits late fees to four percent of the past-due payment and prohibits charging a late fee more than once for a single late payment.934

Truth in Lending: 9.6.12.1.1 General

The violation of any provision of HOEPA gives rise to standard TILA civil liability under 15 U.S.C. § 1640(a) for actual damages, statutory damages, attorney fees and costs. In addition, there are special enhanced damages for violations of 15 U.S.C. § 1639 available under 15 U.S.C. § 1640(a)(4), unless the creditor demonstrates that the failure to comply is not material.

Truth in Lending: 9.6.12.1.2 Statute of limitations

Until the effective date of the Dodd-Frank amendments for which no regulations were issued,947 HOEPA was governed by the same one-year statute of limitations for damages and three-year period for rescission as TILA.948 The Dodd-Frank Act949 extends the statute of limitations for HOEPA violations to three years.950 This longer statute of limitations likely is retroactive for claims (under HOEPA

Truth in Lending: 9.6.12.2 Rescission

A covered loan that includes prohibited terms is subject to the extended right to rescind under 15 U.S.C. § 1635.972 Failure to make proper section 1639 disclosures also triggers the extended right to rescind.973 On the other hand, prohibited creditor behavior, such as early flipping, arguably does not trigger rescission.

Truth in Lending: 9.6.12.4 Correction of Error Defense

The Dodd-Frank Act added a correction-of-error defense for creditors or assignees who, in good faith, fail to comply with HOEPA requirements.985 The Act provides that the creditor or assignee may be deemed not to have violated a requirement if the party establishes that it has complied with either of two provisions.

Truth in Lending: 9.6.12.5 Attorney General Enforcement

In addition to the existing administrative enforcement provision,987 state attorneys general may bring actions to enforce HOEPA.988 There is a three-year limitations period for such actions.989 The case may be filed in federal, bankruptcy, or state court.990 There is a requirement that the state Attorney General provide prior written notice and a copy of the complaint to the federal agency res

Truth in Lending: 9.6.13.2 Scope of Extended Liability

Congress created a strict liability standard for assignees of HOEPA-covered loans.996 Significantly, the statute does not limit assignee liability to TILA or HOEPA violations.997 Assignees of covered mortgages are liable for all claims and defenses, TILA or otherwise, with respect to the assigned mortgage that the consumer could assert against the originator.998

Truth in Lending: 9.6.13.4 Interplay Between the Various Assignee Provisions in § 1641

Finally, the second sentence of section 1641(d)(1) is important and must be carefully considered. The first sentence is the one just discussed at length, that is, the extension to assignees of liability for all claims and defenses (TILA, HOEPA, and anything else under federal or state law) that can be raised against the original lender unless the assignee can prove that a reasonable person could not determine the loan was a covered exercising ordinary due diligence.

Truth in Lending: 9.6.13.5.1 Monetary cap and offset

Where assignees are found to be liable, they will be subject to the full range of claims which could have been asserted against the maker of the loan. This includes liability for the originator’s unfair trade practices, fraud, consumer credit abuses, RICO violations, and any other claims which are supported by the facts of the case.

Truth in Lending: 9.6.13.5.3 Using the roadmap to calculate assignee damages

Let’s flesh out how the limits on damages recoverable against assignees should work by using an example. Suppose your client arrives at your office with loan documents that reveal that the loan is a HOEPA loan. The client never received the advance HOEPA disclosure and you are confident you can prove this in court, though the assignee claims it has a signed and properly dated form.

Truth in Lending: 9.7.1 Calculating the Average Prime Offer Rate

The average prime offer rate (or APOR) is the standard for determining whether a loan is subject to HOEPA’s rules for high-cost mortgages and TILA’s rules for higher-cost mortgage loans (HPML). If a loan’s APR exceeds the APOR by the amount specified in Regulation Z,1065 the loan is said to have exceeded the APR trigger and becomes subject to the relevant provisions.

Truth in Lending: 9.7.2 HOEPA Pre-Dodd-Frank Act: Finding the Relevant Rate and Calculating the APR Trigger

For loans with applications pre-dating the effective date of the Dodd-Frank Act, HOEPA’s APR triggers are measured against the relevant U.S. Treasury bond rate. Finding and calculating the APR trigger is not difficult, though the process includes three steps. First, find the relevant rate. To do so, go to the Federal Reserve Board’s website at https://www.federalreserve.gov/Releases/H15/data.htm which should refer to “H.15” and “Selected Interest Rates” at the top of the page.

Truth in Lending: 9.7.3 Calculating the APR Trigger for an Open-End Mortgage

For home equity lines of credit, the APR for the loan should be compared to the “most closely-comparable” closed-end transaction.1081 The official interpretations spell out how to identify the most closely-comparable closed-end transaction, depending upon whether the open-end credit plan is fixed or variable-rate, the term of the plan to maturity, the term of any initial fixed-rate period on a variable-rate plan, and the date the interest rate is set.

Truth in Lending: 9.8.1 Introduction

The points and fees calculation is critical to determining HOEPA coverage as well as the Dodd-Frank Act’s qualified mortgage definition. This discussion focuses on the mechanics of calculating the HOEPA points and fees under the pre-Dodd-Frank version of the statute.

Truth in Lending: 9.8.2.2.1 Points and fees

The Dodd-Frank Act expands the definition of points and fees to include yield spread premiums, premiums for financed credit life, disability, or unemployment insurance, the maximum prepayment penalty on the loan, and all prepayment fees from the prior loan if held by the same creditor or an affiliate.1096

For loans originated after January 10, 2014, points and fees include all of the following:

Truth in Lending: 9.8.2.2.2 Calculating mortgage originator compensation

The Dodd-Frank Act provides that “all compensation paid directly or indirectly by a consumer or creditor to a mortgage originator” must be included in the points and fees calculation.1105 This is the amendment that results in yield spread premiums being clearly and indisputably captured in the points and fees trigger.1106