HOEPA and senior homeowners: the reverse mortgage exemption and small-loan triggers
Reverse mortgages are expressly excluded from HOEPA, so its counseling and fee limits never reach a HECM; the rule bites instead on the small closed-end loans and home equity lines that older homeowners are sold for repairs and medical bills.
Where the exemption starts and stops
Section 1026.32(a)(2) excludes reverse mortgage transactions subject to 1026.33, along with construction-only loans and loans by housing finance agencies. A HECM or a proprietary reverse loan can therefore carry origination fees, a 2% upfront premium and closing costs that would exceed the high-cost threshold on a forward loan without triggering any HOEPA consequence. The protections you get instead are HUD’s: mandatory counseling, the origination fee cap, the financial assessment and the non-recourse guarantee. Once you refinance a HECM into a forward loan, or take a forward second lien behind it, HOEPA coverage resumes.
How a small loan becomes high-cost
Three triggers apply to a closed-end loan or HELOC on your principal dwelling: an APR more than 6.5 points above the average prime offer rate for a first lien (8.5 for a junior lien or for a first lien under $50,000 secured by a manufactured home), points and fees above 5% of the total loan amount for loans at or above an indexed figure (just under $27,000 in 2025), or for smaller loans the lesser of 8% or a dollar cap around $1,350, and any prepayment penalty that lasts more than 36 months or exceeds 2%. The second trigger is the one that catches older homeowners: a $20,000 roof loan arranged by a contractor with $1,800 in fees is a high-cost mortgage, and so is a $40,000 second lien with three discount points and a broker fee.
What the high-cost label then requires
The lender must receive a certification that you completed counseling with a HUD-approved counselor before closing, must give a special disclosure at least three business days in advance, may not include a balloon payment due in under five years, may not charge a prepayment penalty, may not finance points and fees or credit insurance into the loan, must cap late fees at 4% of the overdue payment, may not charge for payoff statements, and must verify ability to repay. Refinancing its own high-cost loan within a year is barred unless it benefits you, and recommending that you default on an existing loan to get the new one is prohibited. These are the provisions a home-improvement financing desk tends to “forget.”
Products sold as “not a loan”
Shared-appreciation or home equity investment contracts give a retiree cash now in exchange for a share of the home’s future value. Promoters say they are not credit and so sit outside HOEPA and TILA; whether that characterization holds is contested and litigated, and state regulators disagree. Sale-leaseback offers do the same with the deed. Neither requires counseling. Before signing any equity product marketed as payment-free, compare it to a HECM’s TALC figure and to the cost of a plain cash-out refinance, and ask a HUD counselor to review the contract; the session is free for reverse mortgages and low-cost otherwise.
What to check
- On any loan under roughly $50,000, compute the fees as a percentage of the amount before signing.
- Demand the APR-versus-APOR comparison for a second lien or a contractor-arranged loan.
- If a loan is high-cost, insist on the counseling certificate and the three-day disclosure.
- Treat “not a loan” equity products as uncounseled and price them against a HECM.
Frequently asked questions
Are reverse mortgage fees limited by HOEPA?
No. HOEPA excludes reverse mortgages, so its 5% points-and-fees trigger and the resulting restrictions do not apply. HECM fees are instead limited by HUD rules: an origination fee capped at 2% of the first $200,000 of value plus 1% above that, with a $6,000 maximum, a 2% upfront mortgage insurance premium, and third-party charges that must be reasonable. Proprietary reverse loans follow state law and the lender’s own schedule.
A contractor offered financing for a $25,000 repair. Could that be a high-cost mortgage?
Possibly, if it is secured by your home. At that size, points and fees above 5% of the loan amount, or an APR far above prime, make it a HOEPA loan requiring counseling, a special disclosure and no prepayment penalty or balloon. Ask for the APR, the itemized fees and whether a lien will be recorded, and compare an unsecured loan or a small home equity line first.
The rule in full: HOEPA and high-cost mortgage rules. The borrower profile: Retirees and senior borrowers. Related guides: Conventional loan requirements: credit, down payment, DTI, reserves, property · Conventional vs FHA vs VA vs USDA: the four loan types compared · HUD-approved housing counselors: free help that servicers take seriously · Foreclosure rescue scams: the six patterns and the federal rule that bans upfront fees.
Other federal rules for retirees and senior borrowers
TILA / Reg Z · RESPA · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HPA / PMI · Servicing rules · FCRA · Flood insurance · MARS rule · SCRA · LO compensation
HOEPA for other borrowers
First-time buyers · Conventional borrowers · Veterans · Self-employed · Investors · Bad credit · Foreign nationals · Physicians · Heroes · Rural buyers · Condo & second home · Refinancing