What is the Home Ownership and Equity Protection Act?

The Home Ownership and Equity Protection Act (HOEPA) is a federal banking law designed to protect borrowers from predatory lenders. It was enacted by the United States Congress in 1994 and applies to all home loans in Washington. Under HOEPA, lenders must disclose all the terms and conditions of the loan to the borrower and must provide “plain language” details on the loan’s fees and charges. Borrowers must also be informed of their right to cancel the loan within three business days. Additionally, lenders are prohibited from making loans to borrowers based solely on their credit profile, and must assess the borrower’s ability to repay the loan. HOEPA also places restrictions on certain types of high-risk loans. Specifically, if the annual percentage rate (APR) is more than 10 percentage points higher than the rate on a Treasury security with a similar term, or the loan includes certain points and fees, then the loan is considered a high-risk loan and is subject to restrictions. For example, lenders cannot make a loan in which the borrower pays more principal in the first half of the loan than the second, or a loan with a balloon payment due in less than 5 years. By protecting borrowers from predatory lenders, HOEPA helps keep Washington’s housing market stable and encourages responsible borrowing and lending.

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What is the Home Ownership and Equity Protection Act?

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