Under what law is negative amortization illegal when related to high-cost loans?

Negative amortization is illegal in the context of high-cost loans under the Home Ownership and Equity Protection Act (HOEPA). HOEPA was enacted to enhance consumer protections in certain high-cost mortgage transactions. One of the critical provisions of HOEPA is its restriction on negative amortization, which occurs when the payments made on a loan are less than the interest accrued, causing the loan balance to increase over time rather than decrease.

The focus of HOEPA is to safeguard borrowers from predatory lending practices, which may include lending structures that can lead to overwhelming debt due to negative amortization. By prohibiting this practice, HOEPA aims to ensure that consumers are not placed in a position of increasing debt burden that they cannot manage, thereby contributing to the overall stability of homeownership and financial equity.

In contrast, the other laws listed—FACTA (Fair and Accurate Credit Transactions Act), SAFE (Secure and Fair Enforcement for Mortgage Licensing Act), and RESPA (Real Estate Settlement Procedures Act)—serve different purposes within the mortgage industry. While FACTA pertains to credit reporting and identity theft protections, SAFE focuses on licensing and registration standards for mortgage loan originators. RESPA deals with disclosures and settlement procedures in real estate transactions. However, none of these laws specifically address