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Truth in Lending: 9.5.4.5.2 Exemptions

Even if a loan meets the definition of a higher-priced mortgage loan (HPML), it may qualify for one of several exemptions to the escrow requirement: loans used to finance the initial construction of a home, temporary or bridge loans with a term of twelve months or less, cooperative shares, reverse mortgages, and all forms of open-end credit.507 Insurance premiums need not be included in the escrow amounts if the home is a condominium or the homeowner otherwise belongs to an association that maintains a master insurance policy on the premise

Truth in Lending: 9.5.4.5.3 Escrow account requirements

Under the Dodd-Frank Act, a creditor must establish an escrow account in a federally insured depository institution or credit union and administer it in compliance with the Real Estate Settlement Procedures Act and other laws.522 Any interest required under federal or state law must be paid on the escrow account.523 Required disclosures in connection with the escrow account include:

Truth in Lending: 9.5.4.6.2 Exemptions

The appraisal requirement contains a number of exemptions, including for reverse mortgages,534 qualified mortgages,535 temporary bridge loans,536 construction loans,537 and loans secured by mobile homes, boats, and trailers.538 The exemption for mobile homes does not include manufactured homes,539

Truth in Lending: 9.5.4.6.3 Appraisal requirements

For higher-priced mortgage loans, the rule requires creditors to use a licensed or certified appraiser who prepares a written appraisal report based on a physical inspection of the interior of the property.561 The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and to provide consumers with a free copy of any appraisal report.562

Truth in Lending: 9.5.5 Remedies

Significantly, a violation of the prepayment penalty provision (like its HOEPA counterpart) triggers rescission. The definition of “material” disclosure in Regulation Z specifically includes this provision for purposes of rescission.565

Truth in Lending: 9.6.1.1 Introduction

In 1994, Congress amended TILA with the passage of the Home Ownership and Equity Protection Act (HOEPA).569 HOEPA was designed to protect vulnerable consumers from some predatory lending practices by providing additional consumer protections for a class of closed-end, non-purchase-money, relatively expensive home mortgage loans.570 HOEPA’s additional protections include three-day advance Miranda-like disclosures; prohibitions on certain abusive loan terms and creditor practices; increased st

Truth in Lending: 9.6.1.2 Background and Legislative History

In 1993 and 1994, the House and the Senate each held a series of hearings on abusive home lending.590 The record in those hearings details the sordid side of home mortgage lending.591 Numerous witnesses catalogued the hardship, dislocation, and neighborhood destabilization caused by expensive mortgage lending.592 Homeowners from a number of communities traveled to the hearings by overnight bus and surprised legislators by singing spirituals a

Truth in Lending: 9.6.1.3 Major Regulatory Action Since HOEPA’s Effective Date

Following HOEPA’s enactment and as a result of a Congressional directive,599 the Federal Reserve Board held hearings and obtained public comment on a variety of issues relevant to HOEPA in 1997.600 The next year, the FRB and HUD released a Joint Report to the Congress Concerning Reform to the Truth in Lending Act and the Real Estate Settlement Procedures Act.

Truth in Lending: 9.6.1.4 Preemption

Congress recognized that it was regulating high-cost loans only to a limited extent when it enacted HOEPA. State laws in existence before HOEPA and those passed after HOEPA are not preempted, except “to the extent that those [s]tate laws are inconsistent with any provisions of § 1639 . . .

Truth in Lending: 9.6.2.3.1.1 Overview

The 1982 exclusion of “arrangers” from the definition of creditor642 created a loophole which enabled brokers in the business of writing high-cost mortgages to deprive borrowers of both Truth in Lending disclosures and rescission rights. This was done by arranging for loans from individuals or other entities who did not meet the numerical test to be a “creditor” for TILA purposes.643

Truth in Lending: 9.6.2.3.1.2 Pleading requirements and factual development

Pleading requirements may be fairly minimal.647 Nonetheless, practitioners should not ignore the development of factual evidence, where it exists. Many high-cost transactions will appear to be made by a private individual and only careful investigation will reveal the involvement of a broker. Particularly in the foreclosure “rescue” context,648 the operators do not generally portray their transactions as loans or present themselves as lenders or brokers.

Truth in Lending: 9.6.2.4.1 Purchase and construction credit until January 10, 2014

For loan applications received prior to January 10, 2014, “residential mortgage transactions” are exempt from HOEPA.659 That term is generally defined by TILA to include purchase money security interests to finance the acquisition or initial construction of the consumer’s dwelling.660 Consequently, HOEPA applied to refinancing and other home equity loans that meet its cost triggers, but not to purchase and construction loans.661 This exemptio

Truth in Lending: 9.6.2.4.6 Agency authority to exempt other mortgage transactions

In addition, the CFPB has discretionary authority under the Act to exempt specific mortgages or categories of mortgages from some of the prohibitions under the Act, but not from the disclosures.682 This authority is significantly more limited than the general “adjustment” authority.683 In order to create an exemption, the Bureau must find that the exemption is in the interest of the borrowing public and is granted only to products that maintain and strengthen home ownership and equity protec

Truth in Lending: 9.6.3.2 The Relevant Date

The relevant date for selecting the average prime offer rate is not the loan date, but rather the fifteenth day of the month immediately preceding the month in which the application for an extension of credit is received by the creditor.698

Truth in Lending: 9.6.3.3 “Comparable Maturities” Defined

By referencing “comparable maturities,” the law requires that the creditor evaluate the rate for treasury bonds of the same duration as the loan.701 For example, coverage for a five-year loan will be evaluated by reference to the treasury’s five-year bond rates. Coverage for a ten-year loan will be evaluated by reference to the treasury’s ten-year bond rates, and so on.

Truth in Lending: 9.6.3.4 APR Accuracy and Tolerances

All of the “regular” TILA requirements for calculating the annual percentage rate apply to calculating the APR trigger for HOEPA purposes.709 It will be the accurate rate that controls, so the APR must be evaluated for errors.

Truth in Lending: 7.9.7.1 When Required

If the consumer submits a proper billing error notice, the creditor must determine whether a billing error occurred.1126 Before the creditor can determine that no billing error occurred, or that a different error occurred than that complained of, the creditor must conduct a “reasonable” investigation.1127 However, an investigation is not required if the creditor decides to correct the account as requested by the consumer1128 or the consumer w