What Is Home Ownership and Equity Protection Act (HOEPA)?
The Home Ownership and Equity Protection Act (15 U.S.C. § 1639) is a 1994 TILA amendment protecting borrowers on high-cost home loans. A loan triggers HOEPA if its APR exceeds the Average Prime Offer Rate by 6.5 points (first liens) or 8.5 points (subordinate liens), or if points and fees exceed 5% of the loan amount. Covered loans cannot include balloon payments, negative amortization, or asset-based lending — and require mandatory pre-closing counseling.
Key Facts
- The APR threshold for first-lien HOEPA coverage is 6.5 percentage points above the Average Prime Offer Rate (APOR) — in a market where the APOR is 7%, a first lien with an APR above 13.5% is high-cost
- The points-and-fees threshold is 5% of the total loan amount for loans of $25,679 or more (2024 threshold, adjusted annually); for smaller loans, the threshold is the lesser of 8% or $1,284
- Points and fees include origination charges, broker compensation, mortgage insurance premiums paid upfront, and certain single-premium credit insurance premiums — prepaid interest and yield-spread premiums are specifically excluded
- HOEPA prohibits balloon payments on loans with terms under 5 years, negative amortization, prepayment penalties after 3 years, and asset-based lending (making loans without regard to the borrower's ability to repay)
- High-cost mortgage creditors must give borrowers a specific HOEPA disclosure at least 3 business days before closing — and borrowers have a 3-day right to rescind after receiving the final disclosure
- The Dodd-Frank Act (2010) significantly expanded HOEPA coverage and banned the most abusive high-cost loan features that had been widespread in the subprime boom of 2004-2007
What Is a High-Cost Mortgage Under HOEPA?
HOEPA creates a category called "high-cost mortgages" — loans that exceed specific rate or fee thresholds and therefore get additional regulatory scrutiny. The key thresholds (as implemented in CFPB Regulation Z, 12 CFR § 1026.32) are:
- APR threshold (first liens): APR exceeds the Average Prime Offer Rate by more than 6.5 percentage points. The APOR is published weekly by the CFPB and reflects current market rates for prime mortgages. A loan priced far above this benchmark is, by definition, expensive enough to trigger consumer protection scrutiny.
- APR threshold (subordinate liens / second mortgages / HELOCs): APR exceeds the APOR by more than 8.5 percentage points, reflecting the inherently higher risk and rate of second-lien lending.
- Points-and-fees threshold: Total points and fees exceed 5% of the total loan amount (for loans of $25,679 or more in 2024). For smaller loans, the threshold is the lesser of 8% or $1,284. This catches loans where the rate looks reasonable but the origination costs are predatory.
- Prepayment penalty threshold: Points and fees exceed 2% if the loan has a prepayment penalty that extends more than 36 months or exceeds 2% of the amount prepaid.
HOEPA coverage applies to most closed-end mortgages secured by the borrower's primary dwelling — it does not cover purchase money mortgages in most cases (though Dodd-Frank eliminated this exclusion for many loan types), home equity lines of credit, or investment property mortgages.
What HOEPA Prohibits on High-Cost Mortgages
Once a loan triggers HOEPA coverage, federal law prohibits the following terms:
- Balloon payments: Loans with terms under 5 years cannot have a final payment more than twice the regular payment. This bans the classic predatory structure where borrowers make low payments for years, then face a massive lump-sum payoff that forces refinancing into another high-cost loan.
- Negative amortization: Monthly payments cannot be structured so that the unpaid interest adds to the principal balance — a practice that causes borrowers to owe more over time even while making payments.
- Prepayment penalties (after year 3): Lenders cannot charge a penalty for paying off the loan after 36 months. Before year 3, penalties are permitted only under strict conditions and with a lower-cost alternative offered.
- Default rate increases: The interest rate cannot increase upon default — lenders cannot use a borrower's financial difficulty as a trigger to jack up the rate, compounding the hardship.
- Asset-based lending: The creditor must verify the borrower's income and ability to repay from sources other than the home's equity. Lending purely on collateral value without ability-to-repay verification is prohibited — this was central to the predatory lending model of the early 2000s.
- Single-premium credit insurance: Lenders cannot finance the entire premium for credit life, disability, or unemployment insurance in a single upfront payment added to the loan balance, a practice that padded lender revenue while adding to borrower debt.
Mandatory Counseling Requirement
Before a high-cost mortgage can close, the creditor must receive confirmation that the borrower has obtained housing counseling from a HUD-approved counselor. This is not a checkbox disclosure — it is a substantive requirement that the borrower meet with an independent counselor who can explain the loan terms, discuss alternatives, and identify whether the loan's costs are justified.
The counseling requirement is specifically designed to create a speed bump in the predatory lending process. High-cost loans are most commonly originated in urgent or high-pressure situations — a homeowner facing foreclosure, a borrower with limited English proficiency, or a senior extracting equity to pay medical bills. A required third-party consultation gives the borrower a chance to hear from an independent advisor before signing.
Rescission Rights
Borrowers on high-cost mortgages have an enhanced right of rescission. The creditor must deliver the HOEPA disclosure at least 3 business days before closing — not on the closing day. If the lender delivers the disclosure at closing (or fails to deliver it at all), the borrower's 3-year right of rescission under TILA continues to run, meaning they can potentially unwind the loan for up to 3 years after consummation.
HOEPA's History: From 1994 to Dodd-Frank
When HOEPA was enacted in 1994, its coverage was deliberately narrow — the thresholds were set high enough that very few loans qualified. Critics argued this allowed widespread predatory lending in the subprime market that technically fell below HOEPA's triggers. Between 2000 and 2007, subprime loans with teaser rates, prepayment penalties, and balloon payments proliferated — many pricing just below HOEPA thresholds. The Federal Reserve, which had authority to expand HOEPA coverage under TILA, moved slowly.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) transferred HOEPA rulemaking to the newly created CFPB and directed it to expand coverage. The CFPB's 2013 HOEPA rule (effective January 2014) lowered the APR thresholds, tightened the points-and-fees calculation, added the mandatory counseling requirement, and clarified that purchase-money mortgages could also be high-cost. The rule also strengthened TILA's ability-to-repay requirements for all mortgages — not just high-cost ones — through the Qualified Mortgage (QM) rule.
HOEPA and Predatory Lending Today
While subprime mortgage origination collapsed after 2008, high-cost lending has not disappeared. It has migrated toward specific product types: non-QM loans for borrowers who cannot document income, hard-money loans originated by non-bank lenders, certain refinance transactions targeting equity-rich but income-poor homeowners (often seniors), and some state-regulated alternative products. HOEPA coverage depends on exceeding specific numerical thresholds — borrowers and counselors should always calculate whether a proposed loan triggers HOEPA before closing.
State-by-State Variations
Many states have enacted mini-HOEPA laws with lower APR and fee thresholds than the federal standard, adding additional loan term restrictions, counseling requirements, or assignee liability that goes beyond federal law.
| State | Key Difference |
|---|---|
| North Carolina | North Carolina's High Cost Home Loan Law (N.C.G.S. § 24-10.2) was the first state mini-HOEPA law (1999). Sets APR threshold at 5% above T-Bill rate (often lower than federal HOEPA), bans flipping (refinancing within 5 years without net benefit), and adds assignee liability — purchasers of high-cost loans inherit all consumer claims and defenses. |
| New Jersey | New Jersey Home Ownership Security Act (N.J.S.A. 46:10B-22) sets APR threshold at 4.5% above T-Bill rate, imposes broader definition of points and fees, and includes stronger assignee liability provisions. Bans prepayment penalties entirely on covered loans. |
| New York | New York Banking Law § 6-l (High Cost Home Loan Law) sets APR threshold at 6% above APOR for first liens (stricter than federal) and 6.5% for subordinate liens. Requires face-to-face counseling for covered loans and creates private right of action against assignees. |
| Illinois | Illinois High Risk Home Loan Act (815 ILCS 137) sets APR threshold at 6% above APOR — slightly stricter than federal — and includes additional restrictions on flipping, balloon payments on loans under 15 years (stricter than federal 5-year threshold), and mandatory attorney review if requested. |
| Massachusetts | Massachusetts Predatory Home Loan Practices Act (M.G.L. c. 183C) covers loans at 5% APR threshold above APOR for first liens — 1.5 points stricter than federal. Prohibits prepayment penalties on all covered loans regardless of timing, and creates assignee liability for any purchaser of a covered high-cost loan. |
Frequently Asked Questions
How do I know if my loan is a high-cost mortgage under HOEPA?
Check two numbers on your Loan Estimate or Closing Disclosure: the APR and the total lender fees. If the APR is more than 6.5 percentage points above the current Average Prime Offer Rate (APOR, published at ffiec.gov/npw/main/home), or if origination fees and points exceed 5% of the loan amount, your loan is likely high-cost. The lender is required to disclose HOEPA coverage if the loan qualifies.
What is the Average Prime Offer Rate (APOR) and where do I find it?
The APOR is a benchmark rate published weekly by the CFPB based on current market rates for prime mortgage loans. It varies by loan type (fixed vs. ARM) and term. The CFPB and FFIEC publish APOR tables at ffiec.gov. As of early 2026, 30-year fixed APORs are in the 6.5-7% range — meaning a first-lien HOEPA threshold would be approximately 13-13.5% APR.
Does HOEPA apply to purchase loans, or only refinances?
HOEPA originally applied mainly to refinances and home equity loans. After the Dodd-Frank Act's 2013 HOEPA rule, it was expanded to cover most closed-end purchase money mortgages if they meet the APR or fee thresholds. Home equity lines of credit (HELOCs) are specifically excluded from HOEPA coverage, though state laws may cover them.
Can I rescind a high-cost mortgage after closing?
Yes. Under TILA, you have 3 business days to rescind most refinances and home equity loans after closing. For high-cost mortgages, if the lender fails to provide the required HOEPA disclosure at least 3 business days before closing, the rescission period may extend up to 3 years from consummation. To rescind, you must send written notice to the lender via a method that establishes delivery (certified mail).
Is HOEPA the same as the ability-to-repay rule?
No, but they are related. HOEPA prohibits specific loan terms (balloon payments, negative amortization, etc.) on high-cost loans. The ability-to-repay (ATR) rule (12 CFR § 1026.43), implemented by the CFPB under Dodd-Frank, applies to nearly all mortgages and requires lenders to verify a borrower's income, assets, employment, and debts before extending credit. HOEPA is the high-cost loan overlay; ATR is the baseline requirement for all mortgages.