Here’s the promised low-down on HOEPA.
The first challenge brought with new HOEPA is that we are potentially stuck with a broker comp double-count rule. Say a borrower pays a $1,000 origination fee to a brokerage who then pays $500 of that to their employee as compensation. For HOEPA fee calculation purposes, the origination fee is now $1,500. Ouch.
Another challenge involves fees charged by affiliated businesses. The government seems to be coming down pretty hard on these ownership arrangements, so any time a fee is charged by an affiliate of the lender it must be included in the HOEPA fees calculation. It has been widely noted that this rule has the unintended consequence of restricting competition and choice for consumers.
Yet a third has to do with the upcoming “all-in” annual percentage rate calculation that is expected to come out of the upcoming integrated RESPA/TILA disclosure rule. The resulting higher APRs combined with lower HOEPA thresholds equals big trouble.
Fortunately, it appears the CFPB is well aware of these issues and is actively looking for solutions for at least two of them, including the idea of introducing a transaction coverage rate (basically, the old APR calculation) as a way to mitigate unintended circumstances presented by the all-in APR. However, it doesn’t look like the CFPB is interested in softening the affiliated business arrangements rule one bit.
So, there you have it.
In a nutshell, HOEPA has survived the Dodd-Frank Act, now with more teeth. Once the dust settles on CFPB rulemaking, expect numerous states to eventually adopt this new standard as well. That means a lot of new rules to keep track of and program into your workflow system.
Succeeding in the core business of mortgage lending presents ample challenges. Trying to build or manually manage enterprise compliance will not attract new loans. That’s why it’s more important than ever to be looking at third-party compliance automation solutions to do the heavy lifting.
Roger Fendelman is vice president of compliance at Interthinx.
