HOEPA — Home Ownership and Equity Protection Act
Home Ownership and Equity Protection Act of 1994 (15 U.S.C. § 1639), as amended by Dodd-Frank Act
Overview
HOEPA is a 1994 amendment to TILA that provides special protections for borrowers in 'high-cost mortgages' — loans with interest rates or fees exceeding specific statutory thresholds. A loan qualifies as a HOEPA high-cost mortgage if: (1) the APR exceeds the Average Prime Offer Rate (APOR) by more than 6.5 percentage points for first-lien loans (8.5 for junior liens), or (2) the total points and fees exceed 5% of the total loan amount (adjusted annually, currently ~$22,000). HOEPA prohibits certain terms in high-cost mortgages: balloon payments (within 5 years for most loans), negative amortization, prepayment penalties (beyond 3 years), and lending without regard to repayment ability. HOEPA violations entitle the borrower to rescission (3-year extended right), actual damages, statutory damages (up to $4,000), enhanced damages, and attorney fees.
Enacted: 1994 (significantly amended 2010 by Dodd-Frank Act)
Enforcing Agency: Consumer Financial Protection Bureau (CFPB)
Key Provisions
High-Cost Mortgage Triggers (15 U.S.C. § 1639)
A loan is a HOEPA high-cost mortgage if the APR exceeds APOR by 6.5% (first lien) or 8.5% (junior lien), OR the total points and fees exceed 5% of the total loan amount (adjusted annually by the CFPB, indexed to inflation). Lenders must provide a special HOEPA disclosure at least 3 business days before closing, warning the borrower they are receiving a high-cost loan and advising them to consult a housing counselor.
Prohibited Terms (§ 1639(c)-(l))
HOEPA prohibits: balloon payments (for most loans with terms under 5 years), negative amortization, advanced payments from loan proceeds, interest rate increases upon default, prepayment penalties (except for certain fixed-rate Qualified Mortgages where the penalty expires after 3 years), and mandatory arbitration clauses. Lenders cannot make a HOEPA loan without verifying the borrower's ability to repay.
Homeownership Counseling Requirement (§ 1639(u))
Before making a HOEPA high-cost mortgage, the lender must verify that the borrower has received homeownership counseling from a HUD-certified housing counselor. The counselor must be independent — not affiliated with the lender. Failure to verify counseling is a HOEPA violation.
Assignee Liability (§ 1641(d))
Unlike TILA (where assignee liability is limited), HOEPA provides that ASSIGNEES of high-cost mortgages are generally liable for all claims and defenses the borrower could assert against the original lender — including rescission and damages. This means a securitization trust that holds a HOEPA loan takes it subject to all borrower claims.
How This Law Protects Homeowners
HOEPA provides the strongest federal protections against predatory lending. If your loan qualifies as a HOEPA high-cost mortgage, the lender: (1) must provide a special warning 3 days before closing, (2) cannot include balloon payments, negative amortization, or prepayment penalties, (3) must verify your ability to repay, and (4) must verify you received independent homeownership counseling. Violations can result in rescission (voiding the loan), actual and statutory damages, enhanced damages, and attorney fees. HOEPA's assignee liability provision means you can assert these claims against the current holder of the loan, not just the original lender.
Why This Matters in a Foreclosure
In foreclosure, HOEPA violations are powerful defenses and counterclaims. If your loan triggers HOEPA thresholds and includes prohibited terms, you can: (1) assert HOEPA violations as an affirmative defense to foreclosure (the loan is predatory and should not be enforced), (2) seek rescission if within the 3-year window, (3) sue the current holder for HOEPA damages (assignee liability means the foreclosure plaintiff is liable for the original lender's HOEPA violations), and (4) raise HOEPA in a forensic loan audit. Many subprime loans from 2004-2008 trigger HOEPA thresholds.
Common Violations
- •Making a HOEPA high-cost loan without verifying the borrower's ability to repay
- •Including prohibited terms in a HOEPA loan (balloon, negative amortization, prepayment penalty beyond 3 years)
- •Failing to provide the HOEPA disclosure at least 3 business days before closing
- •Failing to verify the borrower received independent homeownership counseling
- •Charging points and fees exceeding 5% of total loan amount (triggering HOEPA without complying with HOEPA protections)
- •Making a loan with APR exceeding APOR + 6.5% (first lien) without HOEPA compliance
Available Remedies
- •Rescission: void the entire loan within 3 years (extended right for HOEPA violations)
- •Actual damages: compensation for all financial harm caused by the HOEPA violation
- •Statutory damages: up to $4,000 per violation (HOEPA-specific, higher than TILA)
- •Enhanced damages: court may award additional damages for egregious violations
- •Attorney's fees and costs: mandatory for prevailing borrower
- •Assignee liability: assert all claims against the current holder (trust, bank), not just the originator
Recent Developments
The CFPB continues to actively enforce HOEPA. Recent enforcement actions have focused on lenders who evaded HOEPA thresholds by structuring fees to stay just under 5% or misclassifying loans to avoid high-cost status. The CFPB has also issued guidance reminding assignees (securitization trusts, debt buyers) that they are liable for HOEPA violations of the original lender. In 2025, the CFPB updated the points and fees threshold to approximately $22,100 (adjusted for inflation).
Frequently Asked Questions
How do I know if my loan is a HOEPA high-cost mortgage?+
Calculate: (1) your APR minus the APOR at the time of origination (APOR data is published by the CFPB) — if the difference exceeds 6.5% for first lien or 8.5% for junior lien, the loan triggers HOEPA, OR (2) total points and fees divided by total loan amount — if this exceeds 5% (approximately $22,100 for 2025), the loan triggers HOEPA. Look at your HUD-1 Settlement Statement for the APR and fees. The APOR is available from the FFIEC rate spread calculator. If either threshold is met, all HOEPA protections apply — even if the lender failed to provide HOEPA disclosures.
Can I assert HOEPA violations against the current holder if the original lender was the predator?+
YES — this is one of HOEPA's most powerful features. Under 15 U.S.C. § 1641(d), assignees of HOEPA high-cost mortgages are liable for all claims and defenses the borrower could assert against the original lender. This includes rescission, damages, and attorney fees. The foreclosure plaintiff (whether a bank, trust, or debt buyer) cannot claim 'we didn't originate the loan, so we're not responsible for its terms.' HOEPA assigns liability to the current holder regardless of fault.
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