Home Ownership and Equity Protection Act

Dear Board of Directors:

The purpose of this Regulatory Alert is to inform you of a recent change the Board of Governors of the Federal Reserve System announced to the minimum level of points and fees that mandate lenders to provide borrowers disclosures required by Section 32 of Regulation Z, Truth in Lending. Section 32 of Regulation Z implements the Home Ownership and Equity Protection Act of 1994 (HOEPA). HOEPA protects consumers from deceptive and unfair practices in home equity lending by establishing specific disclosure requirements for certain mortgages that have high rates of interest or assess high fees and points.

Annually, the Board of Governors of the Federal Reserve System revises the minimum threshold for the total amount of points and fees that require lenders to provide borrowers disclosures mandated by HOEPA. Effective January 1, 2007, the minimum threshold for total fees and points will increase from $528 to $547. If the total points and fees exceed the greater of $547 or 8 percent of the loan amount, Section 32 of Regulation Z requires lenders to provide borrowers additional disclosures. Credit insurance premiums for insurance written in connection with the credit transaction are fees for the purpose of this computation.

HOEPA applies to:

• First lien mortgage loans, excluding home purchases, where:
  • the annual percentage rate (APR) exceeds the rate of comparable maturity Treasury securities by more than 8 percentage points, or
  • total fees and points payable by the consumer at or before closing exceed the greater of 8 percent of the total loan amount or the annual minimum threshold.
• Second lien mortgage loans where:
  • the APR exceeds the rate of comparable maturity Treasury securities by more than 10 percentage points, or
  • total fees and points payable by the consumer at or before closing exceed the greater of 8 percent of the total loan amount or the annual minimum threshold.
• Other refinancing and home equity installment loans, excluding reverse mortgages and open ended lines of credit, where:
  • the APR exceeds the rate of comparable maturity Treasury securities by more than 10 percentage points, or
  • total fees and points payable by the consumer at or before closing exceed the greater of 8 percent of the total loan amount or the annual minimum threshold.

A concise overview of HOEPA is published on the Federal Trade Commission's web site at: http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea19.shtm

Should you have questions about HOEPA disclosure requirements, please do not hesitate to contact your regional office or state supervisory authority.