What is the Home Ownership and Equity Protection Act?

The Home Ownership and Equity Protection Act (HOEPA) is a federal law that applies to Delaware and other states across the nation. It was passed in 1994 to protect against predatory lending practices that hurt home ownership and equity. It sets limits on loan terms, fees, and interest rates that can be charged for certain types of mortgage loans. It also requires lenders to provide certain disclosures to borrowers so they fully understand the terms of the loan. HOEPA applies to two types of mortgage loans: high-cost and/or higher-risk mortgages. A loan is considered high-cost if the annual percentage rate (APR) is 8.5% or more above the prime rate, or if the loan has additional costs, fees, or points that add up to more than total 8% of the loan.Higher-risk mortgages are those that have special features, such as interest-only payments or balloon payments. HOEPA protects borrowers from a variety of predatory lending practices, such as excessive or hidden fees, loan flipping (refinancing a loan repeatedly to extract excessive fees from the borrower), cramdown (forcing a borrower to agree to more costly terms than they can afford), and equity stripping (taking out a loan that far exceeds the value of the home). In order to ensure compliance with HOEPA, lenders and other financial institutions must file Home Mortgage Disclosure Act reports (HMDA) with the federal government. This provides valuable insight into a lender’s lending practices. By understanding and enforcing HOEPA, Delaware and other states can work to reduce predatory and unfair mortgage lending.

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