H.R. 1699 amends the Truth in Lending Act (15 U.S.C. 1601) to allow for the first mortgage on a homeowner’s principal home to not be considered “high cost” if (1) the mortgage annual percentage rate (APR), at the time of consummation of the loan, does not exceed 10 percent of the average prime offer rate (APOR) (2) the transaction does not exceed $75,000 and, (3) the mortgage points and fees paid to the mortgage originator do not exceed 5 percent of the transaction or $3,000. The Consumer Financial Protection Bureau (CFPB) will have the ability to adjust designated amounts to reflect changes in the Consumer Price Index (CPI). This will allow consumers of small-balance residential loans to have increased access to mortgage credit.
This legislation also clarifies that the definitions of “mortgage originator” and “loan originator” do not include retailers of manufactured or modular homes, unless a retailer receives compensation from the sale of the loan or assists the consumer during the loan application process.
The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth in Lending Act to address abusive practices in refinancings and closed-end home equity loans with high interest rates or high fees. Since HOEPA’s enactment, refinances or home equity mortgage loans meeting any of HOEPA’s high-cost coverage tests have been subject to special disclosure requirements and restrictions on loan terms, and consumers with high-cost mortgages have had enhanced remedies for violations of the law.
The Dodd Frank Act, and the implementing rule, changed certain tests for determining if a loan is considered “high cost” under HOEPA.
The Committee on Financial Services found that the new tests in determining if a loan is “high cost” have resulted in reduced access to credit for consumers of affordable manufactured and modular housing. Due to increased lender liability associated with making small-balance loans applicable to HOEPA standards, some lenders reduced or stopped providing such loans to some consumers.
Lenders have argued that they frequently need to charge higher interest rates to consumers of manufactured homes because those consumers oftentimes carry a higher risk of default. Lenders have also argued that cost discrepancies occur because the cost of servicing a larger-balance loan is very similar in real dollars to that of servicing a small-balance loan, while the service cost as a percentage of a loan is much higher for small-balance loans.