New rules set for high-cost mortgages

By Stephanie Ostrowski | Jan 22, 2013

WASHINGTON (Legal Newsline) - Consumers now will be provided with home ownership counseling and are required to establish an escrow account for a minimum of five years for high-priced mortgages in a final rule issued by the Consumer Financial Protection Bureau.

The goal is to strengthen consumer protection for high-cost mortgages, according to the CFPB. The new rules were announced Jan. 10.

Since 1994 when the Home Ownership and Equity Protection Act (HOEPA) was enacted to address misuse of home-equity lending and refinances, the act has discouraged high-rate and high-fee lending in certain markets.

The act was expanded with the Dodd-Frank Wall Street Reform and Consumer Protection Act to cover home purchase loans and home equity lines of credit, and to revise the act's rates and fee thresholds for coverage, add new coverage test based on transaction's prepayment penalties, and provide new limitations on risky loan features, in addition to other new protections.

The CFPB has finalized rules to implement the Dodd-Frank Act's amendments to the act.
"Addressing problems in the mortgage market is critical to helping our economy recover," CFPB Director Richard Cordray said. "Today's changes will better help consumers to understand the real costs of owning a home while protecting them from harmful practices that can trap them into high-cost mortgages."

The final rule will ban potentially risky features such as balloon payments and penalties for paying the loan early in high-cost mortgages.

Also banned are certain fees and practices for modifying loans, caps on late fee at four percent of a past due payment, closing costs rolled into loan amounts, and restricts charging fees for the consumers payoff statement.

The rule also prohibits bad practices such as encouraging the consumer to default on an existing loan to be refinanced by a high-cost mortgage.

Housing counseling is now required before taking out a high-cost mortgage which in recent years have made up more than only about 0.2 percent of home loans.

In the final rule the bureau changed the Dodd-Frank Act to require an escrow account for certain higher-priced mortgage loans from a minimum of one year to a minimum of five years. An escrow account will help consumer's better see the true cost of owning a home with insurance and tax costs clearly with each mortgage payment and are assured those costs are paid on time.

The new CFPB rules can be read at:

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