Introduction

When it comes to mortgage lending, navigating the various regulations and requirements can be a daunting task. One such regulation that borrowers and lenders alike should be familiar with is the Home Ownership and Equity Protection Act (HOEPA), specifically Section 35, which outlines appraisal requirements for certain high-cost mortgages. However, not all mortgage loans are subject to these appraisal requirements. In this article, we'll discuss the types of mortgage loans that are exempt from HOEPA Section 35 appraisal requirements, providing clear examples and practical advice to help you make informed decisions.

What is HOEPA Section 35?

Before diving into the exemptions, let's briefly understand HOEPA Section 35. This section of the regulation aims to protect consumers from predatory lending practices by imposing additional requirements and restrictions on high-cost mortgages. One of these requirements is the need for a second appraisal in certain circumstances, such as when the loan is considered a "higher-priced mortgage loan" (HPML) or when the property was previously acquired by the seller within a specific timeframe.

Mortgage Loans Exempt from HOEPA Section 35 Appraisal Requirements

While HOEPA Section 35 appraisal requirements apply to many high-cost mortgages, there are certain types of loans that are exempt from these requirements. Here are some common examples:

1. Qualified Mortgages (QMs)

Qualified Mortgages (QMs) are a category of loans that meet specific underwriting criteria set forth by the Consumer Financial Protection Bureau (CFPB). These loans are designed to ensure that borrowers have the ability to repay the loan, and as such, they are exempt from HOEPA Section 35 appraisal requirements.

Example: If you apply for a 30-year fixed-rate conventional mortgage with a reputable lender and meet the QM criteria, your loan may be exempt from HOEPA Section 35 appraisal requirements.

2. Reverse Mortgages

Reverse mortgages, which allow homeowners aged 62 and older to access a portion of their home equity, are exempt from HOEPA Section 35 appraisal requirements. These loans are designed specifically for senior homeowners and have their own set of regulations and requirements.

Example: If you're a senior homeowner considering a reverse mortgage to access your home equity, you won't need to worry about HOEPA Section 35 appraisal requirements.

3. Home Equity Lines of Credit (HELOCs)

Home Equity Lines of Credit (HELOCs) are typically exempt from HOEPA Section 35 appraisal requirements. These loans allow homeowners to borrow against the equity in their homes, and the appraisal process is generally less stringent than for traditional mortgages.

Example: If you're applying for a HELOC to access funds for home improvements or other purposes, you likely won't need to meet HOEPA Section 35 appraisal requirements.

4. Certain Refinance Loans

Certain types of refinance loans may also be exempt from HOEPA Section 35 appraisal requirements. This includes streamlined refinances offered by government-backed programs like FHA and VA, as well as certain conventional refinances where the loan amount is not increasing significantly.

Example: If you're refinancing your existing FHA loan through the FHA Streamline Refinance program, you may not need to meet HOEPA Section 35 appraisal requirements.

Conclusion

While HOEPA Section 35 appraisal requirements are in place to protect consumers from predatory lending practices, it's important to understand that not all mortgage loans are subject to these requirements. Qualified Mortgages, reverse mortgages, HELOCs, and certain refinance loans are among the types of loans that may be exempt. However, it's crucial to consult with your lender or a qualified mortgage professional to determine if your specific loan qualifies for an exemption.

Remember, the mortgage lending process can be complex, and regulations can change over time. By being informed and seeking guidance from experts, you can navigate the process with confidence and make decisions that align with your financial goals and best interests.