HOEPA and bank-statement loans: how self-employed pricing nears the high-cost line

High-cost status is rare on agency loans and plausible on non-QM. A self-employed borrower paying a premium rate plus points and broker compensation should compute both HOEPA tests — and understand that most lenders will restructure the deal rather than close a high-cost loan.

HOEPA does not care why your rate is high. It measures the result. And the arithmetic of a bank-statement loan — a rate premium, two or three discount points, a broker’s compensation, maybe a lender fee for “complex income” — lands closer to the triggers than most borrowers realize.

The three tests on a typical non-QM deal

For a consumer-purpose loan on your principal dwelling, a loan is high-cost if any of these is true: the APR exceeds the average prime offer rate by more than 6.5 percentage points on a first lien (8.5 on a subordinate lien); points and fees exceed 5% of the total loan amount for loans of roughly $27,000 and up (the threshold is indexed annually, with an 8% or flat-dollar test below it); or a prepayment penalty can apply more than 36 months after closing or exceed 2% of the amount prepaid. On a $400,000 bank-statement loan, 5% is $20,000. Broker compensation paid by the lender counts in points and fees; so do origination charges, most third-party fees retained by the lender, and premiums for credit insurance. Bona fide discount points are excluded only within limits — up to two points if the undiscounted rate is within one point of APOR, one point if within two — and non-QM rates are rarely that close, so the points you pay to buy the rate down often count in full.

What closes the gap for self-employed borrowers

Smaller loans are the danger zone: on a $150,000 loan, a $4,000 broker fee, $2,500 in lender charges and one point already reach 5%. Add-on fees that exist only for this profile — “income analysis fee,” “CPA letter review,” “non-QM underwriting fee” — count too. On the APR side, a 40-year interest-only product priced three to four points over conventional, with the points rolled in, can sit within a couple of points of the 6.5 trigger when prime rates are modest, and closer still when the loan is small and the fixed fees inflate the APR.

If the loan is high-cost — and why it usually will not be

A high-cost loan cannot have a balloon payment (with narrow exceptions), a prepayment penalty, or fees financed into the loan; requires counseling from a HUD-approved counselor before closing; and subjects the lender to stricter repayment and assignee liability. Most non-QM investors will not buy such a loan, so the file gets restructured: fees shift into the rate, a point is waived, or the loan is re-papered as business-purpose — which is lawful only if the money actually goes to a business. Watch for that last move on a cash-out refinance.

The lower bar you will probably hit

Well before HOEPA, the higher-priced mortgage loan rules in § 1026.35 kick in at 1.5 points over APOR for a conforming first lien (2.5 for jumbo). Most bank-statement loans are HPMLs: mandatory escrow for five years, a written appraisal with an interior inspection, and a second appraisal if the seller bought within 180 days and the price jumped. That is not a reason to avoid the loan — it is a reason to know the costs were not optional. Thresholds and enforcement are on the HOEPA page; how points and broker pay appear on the forms is in closing costs explained.

What to check

Frequently asked questions

Are bank-statement mortgages considered high-cost loans?

Usually not, but they can be. A loan becomes high-cost only if its APR exceeds the average prime offer rate by more than 6.5 points, its points and fees exceed 5% of the loan amount, or it carries a prohibited prepayment penalty. Non-QM pricing and fees get closer to those lines than agency loans, particularly on smaller loan amounts, so it is worth running the numbers.

Do the discount points I pay on a non-QM loan count toward the HOEPA fee limit?

Frequently yes. Reg Z excludes up to two bona fide discount points only when the rate before the buydown is within one point of APOR, and one point if within two. Non-QM rates are typically well above those levels, so the points count in full toward the 5% test alongside origination charges and lender-paid broker compensation.

The rule in full: HOEPA and high-cost mortgage rules. The borrower profile: Self-employed borrowers. Related guides: Conventional loan requirements: credit, down payment, DTI, reserves, property · Debt-to-income ratio limits by loan type — and how to lower yours · 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 self-employed 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 · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Heroes · Rural buyers · Condo & second home · Refinancing

Sources

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