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Important new protections for homebuyers

Posted on April 8, 2014
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Thinking about a new home

If you're considering purchasing or refinancing a home this year you should be aware of some important new rule changes. The changes are tied to the Home Ownership and Equity Protection Act (HOEPA), which went into effect at the beginning of the year.

The primary purpose of HOEPA is to provide relief, protection, and counseling to homebuyers with less-than-optimal credit ratings; borrowers whose low scores would make them subject to high-cost mortgages.


What's a high-cost mortgage?

To understand what a high-cost mortgage is you first have to understand the term average prime offer rate. The average prime offer rate (which we'll shorten to APOR for simplicity's sake) is determined by the Federal Reserve Board. Per the Federal Reserve Board's definition, the APOR is "an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics." Essentially, that means that the APOR represents the average mortgage loan terms for buyers with healthy credit.

If the first mortgage on your new home is more than 6.5 percentage points higher than the APOR at the time of closing, then that is considered to be a high-cost mortgage and you are entitled to additional protections under HOEPA.

On a second mortgage (Home Equity Loan), or a primary mortgage below $50,000, if your interest rate is 8.5 percentage points higher than the APOR, then you would also have certain protections under HOEPA.


What protections does HOEPA offer?

The hope behind HOEPA is that homebuyers with poor credit will be able to achieve their dreams of homeownership without being set-up to fail by high interest rates, exorbitant fees, and a lack of sufficient financial training. In that spirit, HOEPA limits or bans many of the fees and charges a high-cost mortgage borrower might once have faced, including:

  • Fees for paying off your loan early
  • Late fees larger than 4 percent of your regular payment
  • Fees for loan modifications for struggling homeowners
  • Fees for receiving a payoff statement
  • Balloon payments near the end of a loan

Your lender must inform you, prior to completing that loan, that the mortgage you are agreeing to is a high-cost mortgage. They must provide you with information, including the terms, costs, and fees associated with the loan.

Additionally, as part of HOEPA, all high-cost mortgage borrowers need to complete homeownership counseling to ensure that they are prepared to successfully manage their new financial responsibilities. MMI is proud to offer that counseling.


Protecting yourself

If you believe that your lender is not following the rules created by HOEPA, please contact that Consumer Financial Protection Bureau at or 855.411.2372.

This article was written by  written by Jesse Campbell, and reposted from Money Management International. Union members interested in a free budget analysis should contact Union Plus Credit Counseling at 1-877-833-1745 or click here.




Looking to buy a home or refinance your current one with additional protection for union members?

The Union Plus Mortgage program, with financing available through Wells Fargo Home Mortgage, provides a wide range of financing options and benefits for union members, their parents and children. Click to learn more about the Union Plus Mortgage Assistance program and other valuable features


To speak with a mortgage professional about buying or refinancing a home, call 1-800-848-6466 or visit


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