Which HOEPA protection statement is incorrect?

Which HOEPA protection statement is incorrect?

• A. Negative amortization is prohibited
• B. The interest rate cannot be increased if the loan goes into default
• C. Balloon payments are prohibited for loans of less than five years (except for bridge loans)
• D. Second homes and investment properties are not exempt from HOEPA

Answer: (D)

The main idea here is how HOEPA applies to loans. HOEPA protections cover high‑cost mortgages that are secured by a consumer’s principal dwelling—the home the borrower intends to occupy as their primary residence. Loans on second homes or investment properties are not subject to HOEPA’s protections; they are exempt. So the statement claiming that second homes and investment properties are not exempt is incorrect because, in fact, HOEPA protections do not extend to those properties. The other listed protections describe HOEPA features that do apply to high‑cost loans on a primary residence, such as prohibiting negative amortization, restricting balloon payments on short‑term loans (with bridge loans as an exception), and limiting rate increases tied to default, all of which align with HOEPA rules.

The main idea here is how HOEPA applies to loans. HOEPA protections cover high‑cost mortgages that are secured by a consumer’s principal dwelling—the home the borrower intends to occupy as their primary residence. Loans on second homes or investment properties are not subject to HOEPA’s protections; they are exempt.

So the statement claiming that second homes and investment properties are not exempt is incorrect because, in fact, HOEPA protections do not extend to those properties. The other listed protections describe HOEPA features that do apply to high‑cost loans on a primary residence, such as prohibiting negative amortization, restricting balloon payments on short‑term loans (with bridge loans as an exception), and limiting rate increases tied to default, all of which align with HOEPA rules.