Question: We are a little confused after talking with our examiner about the differences between a purchase money loan and a refinancing when the refinancing is of the purchase money loan. The examiner was arguing that we had to provide early Truth in Lending disclosures because the loan being refinanced was a purchase loan and therefore the refinancing should be treated as a purchase money - but we still had to give rescission because the borrower already had title. Is this interpretation correct? If so, when does a purchase money loan stop being a purchase money loan. How many times does it have to be refinanced to lose that status?
Answer: The regulatory test is what the consumer is going to do with this loan; not what had been done with a previous loan. When the consumer obtained the first loan, the purpose was to purchase the dwelling. Now the consumer owns and lives in that dwelling. Subsequent loans are therefore not for purchase. Been there, done that. It's over. The purchase money status does not flow beyond the settlement of the purchase.
Consider the purpose of the early disclosures. They are designed to alert the consumer to the scope and cost of the transaction being entered. It may be the first home purchase for the consumer or a significant step up to a more expensive house. The early disclosures help the consumer to plan and prepare. They also give the consumer a chance to back out.
This is not the issue for a refinance. The consumer has reasons other than purchase when refinancing. It may be to draw additional amounts on the equity in the home. It may be to reduce the interest rate or to convert a variable rate loan to a fixed rate loan. These are not the issues that trigger the regulatory requirement for early disclosures. In these situations, the consumer is presumed to already have some experience in home financing and the regulatory burden of providing early disclosures is simply not justified.
BankersOnline is a free service made possible by the generous support of our advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all banking professionals. Support our advertisers and sponsors by clicking through to learn more about their products and services.
Print Friendly!
Email This Article!
Discuss NOW!
