A surge in mortgage rates in recent weeks has led more Americans to apply for purchase mortgages.
What is the Home Ownership and Equity Protection Act?
The Home Ownership and Equity Protection Act is a federal law that discourages banks and other financial institutions from predatory lending when they fund mortgages and home equity loans.
Originally enacted in 1994 as an amendment to the Truth in Lending Act, the Home Ownership and Equity Protection Act’s purpose was to end abusive practices in the home loan industry and provide certain safeguards for borrowers.
The Home Ownership and Equity Protection Act states that if a mortgage or home equity loan meets the high-cost coverage tests, then the lender must provide the borrower with certain disclosures.
These disclosures help the borrower to better understand the ultimate cost of the loan as well as the consequences for defaulting on the loan. Borrowers must undergo pre-loan counseling to make sure they fully understand the terms of the loan. There are also restrictions concerning fees and penalties associated with high-cost loans.
Home Ownership and Equity Protection Act example
Borrowers with poor credit or unverifiable income often have a difficult time securing approval for a home loan. When these borrowers do secure loan approval, the terms tend to be much more costly than conventional mortgages.
The Home Ownership and Equity Protection Act seeks to make sure they understand exactly what kind of loans they are taking out.
For example, if you are newly self-employed with variable income, you might only be able to secure mortgage approval from a lender that provides high-cost mortgages.
Mortgages are considered high cost when the annual percentage rate exceeds the average prime offer rate for similar transactions by more than 6.5 percentage points. Your prospective lender must provide you with disclosures that specifically state how much this loan will ultimately cost you.