According to HOEPA, what must be established for a higher-priced loan?

Under the Home Ownership and Equity Protection Act (HOEPA), specifically for higher-priced loans, one of the requirements is the establishment of an escrow account for taxes and insurance payments. This requirement is intended to protect borrowers from the risk of losing their homes due to unpaid property taxes or insurance premiums. By having these amounts collected and held in an escrow account, lenders ensure that these critical obligations are met, thereby reducing the likelihood of foreclosure.

Requiring an escrow account reflects a commitment to responsible lending practices, as it helps borrowers manage their finances more effectively and ensures that all necessary payments related to homeownership are made on time. This provision also serves to provide more transparency and familiarity in the borrowing process, helping borrowers understand the total cost of homeownership, which includes taxes and insurance, in addition to the mortgage payment.

The other choices mentioned do not align with the specific requirements set forth by HOEPA for higher-priced loans. For example, mortgage insurance and term life insurance policies are not mandated by HOEPA, although they may be required under certain conditions or by specific lenders. Establishing a principal and interest payment on its own does not address the particular consumer protections that HOEPA aims to put in place for higher-priced loans.