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Thursday, September 24, 2015

HOEPA Loan Proceeds

QUESTION
We are a lender that originated a HOEPA loan. We were asked if we could make a payment to a contractor under a home improvement contract from HOEPA proceeds. Is that permissible?

ANSWER
A creditor may not pay a contractor under a home improvement contract from the proceeds of a HOEPA loan, other than:

1.     By an instrument payable to the consumer or jointly to the consumer and the contractor (and if there are multiple consumers who are primarily liable each must be named as payee); or
2.     At the election of the consumer, through a third-party escrow agent in accordance with the terms established in a written agreement signed by the consumer, the creditor, and the contractor prior to disbursement. [12 CFR § 226.34(a)(I); 12 CFR Supp. I to part 226 – Official Staff Commentary §226.34(a)(I)(i)-I]

Jonathan Foxx
President & Managing Director 
Lenders Compliance Group