Question

Under the Home Ownership and Equity Protection Act (HOEPA), which loan below would NOT be considered a high-cost loan?

A. A subprime loan with an APR that is 6% higher than the average prime rate.
B. A conforming loan with an APR that is 3% higher than the average prime rate.
C. A jumbo loan with an APR that is 4% higher than the average prime rate.
D. A HELOC with an APR that is 8% higher than the average prime rate.

Answer 1

A loan that would NOT be considered a high-cost loan under HOEPA is a conforming loan with an APR that is 3% higher than the average prime rate. Option B is correct.

Step-by-step explanation:

Under the Home Ownership and Equity Protection Act (HOEPA), a loan that would NOT be considered a high-cost loan is a conforming loan with an APR that is 3% higher than the average prime rate. The loans considered high-cost under HOEPA are those with an APR significantly higher than the average prime rate.

In particular, a threshold of 6.5% over the average prime rate for first-lien loans, or 8.5% for junior liens, has been mentioned in regulatory guidelines. Therefore, a conforming loan with an APR 3% higher than the average prime rate, would not qualify as a high-cost loan under HOEPA.