M E M O R A N D U M
Clients and Friends
Cadwalader, Wickersham & Taft
December 29, 2000
High Cost Home Mortgage Loans: Proposed Revisions to Federal Reserve
Regulation Z Intended to Address Predatory Lending Practices.
The Board of Governors of the Federal Reserve System (the “Federal Reserve”) has
published proposed amendments1 to Regulation Z (Truth in Lending)2 (the “Regulation”) and the
related Official Staff Commentary that implement the Home Ownership and Equity Protection Act
(“HOEPA”), the federal act governing “high cost” mortgage loans (hereinafter referred to as “High
Cost Loans”). The proposed amendments (the “Amendments”), for which comment has been
solicited on or prior to March 9, 2001, would impose additional constraints and requirements on
loan originators in connection with the origination of High Cost Loans.
This Memorandum summarizes these additional constraints, as well as the
amendment to the provisions regarding assignee liability.
Assignee Liability. Regulation Z currently extends to purchasers and other
assignees of High Cost Loans all claims and defenses with respect to a mortgage that the
consumer could assert against the creditor. The Official Staff Commentary to the
1 65 F.R. 81438, December 26, 2000.
2 12 C.F.R. Part 226.
Amendments seeks to clarify the interplay between the holder-in-due-course defenses to
liability and the assignee liability provisions under HOEPA by stating that holder–in-due-
course protections generally afforded under the Consumer Credit Protection Act do not
apply to assignees of High Cost Loans; therefore, any defense to liability of an assignee based
upon it being a holder-in-due course without any actual knowledge of the violation under
HOEPA is presumed under the Amendments, to be unavailable. In essence, the Federal
Reserve’s Official Staff Commentary to the Amendments reflects the intention that a “strict
liability” standard apply for assignees of High Cost Loans with virtually no defenses on the
part of an assignee (