HOEPA loans, also called Section 32 mortgages, are mortgage refinancing or home equity installment loans that are covered by the Home Ownership and Equity Protection Act, states the Federal Trade Commission. HOEPA covers high-interest and high-fee loans and bans practices that are considered deceptive or unfair.
Lenders must provide borrowers disclosure statements providing the interest rates, monthly payments and balloon payment amounts if applicable, states the FTC. If the loan has a variable interest rate, the lender must disclose the maximum monthly payment amount. It must warn the borrower that he may lose his home if he does not make required payments.
With the exception of bridge loans with a term of one year or less, HOEPA does not allow lenders to charge a balloon payment on loans with terms of less than five years, according to the FTC. In addition, if the monthly payment does not cover the minimum monthly interest, lenders may not add the unpaid interest to the balance of the loan. HOEPA also bans lenders from including a due-on-demand clause unless the borrower commits fraud related to the loan or violates loan terms.
HOEPA covers loans where the interest rate exceeds eight percentage points on an original loan or 10 percentage points on a second mortgage compared to the Treasury securities of comparable maturity rates, according to the FTC. It also covers loans where the fees paid at closing exceed 8 percent of the total loan amount, or $625 as of 2013, states the FTC.