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A Banker's Guide to Virtual Currency
Andrew Beal

April 24
BSA/AML Compliance: Writing the SAR Narrative
Ken Golliher

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HSA Basics
Whitney Johnson

April 29
Required Training for Loan Originators
Mary Beth Guard and Jack Holzknecht

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Overdraft Practices in Today's Regulatory Environment
John Burnett

May 14
Reg E Claims - Allocating Liability Correctly
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#1350324 - 03/01/10 08:49 AM Commercial Loan (RESPA / GFE)
Chubby Offline
New Poster

Registered: 03/29/06
Posts: 9
Faced with an interesting situation. Please read the particulars (below) and provide your response as my RESPA skills are not the greatest.

1. Borrower (individual) has applied for a loan on their three (3) unit resi. investment apartment building. Our Business Loan Application was completed for purposes of requesting the loan (i.e. A Residential Application was NOT completed).

2. Borrower has knowingly and willingly applied for a hybrid residential/commercial in-house / portfolio loan product that we offer. The loan will not be sold and we will service.

3. Subject three (3) unit resi. investment apartment building is owned individually (i.e. It is NOT owned by a business entity).

4. Borrower does NOT live at the subject three (3) unit resi. investment apartment building. Non-owner-occupied.

I'm told the above situation now falls under RESPA thanks to recent changes to the point that I am to, among other things, disclose, provide GFE, etc.

Is this true? Please let me know when you can. Thank you very much for any guidance you may be able to provide.



P.S. If the above falls under RESPA, then please direct me to the you can, then please direct me to the specific regulation as published by the gov't.

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RESPA
#1350328 - 03/01/10 09:03 AM Re: Commercial Loan (RESPA / GFE) [Re: Chubby]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 40004
Loc: Bloomington, IN
RESPA applies to all consumer purpose loans secured by a 1-4 family real property, therefore if any of the above 4 scenarios are for a personal, family or house hold use (consumer purpose) then they are subject to RESPA.

The coverage of RESPA is discussed in HUD's Reg X RESPA section 3500.5.

BTW, the above scenarios always fell under RESPA (if for a consumer purpose), the recent changes did not affect the coverage rules of 3500.5.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1350336 - 03/01/10 09:16 AM Re: Commercial Loan (RESPA / GFE) [Re: Dan Persfull]
RR Joker Offline
10K Club

Registered: 11/15/02
Posts: 15753
Loc: The Swamp
As Dan said, the missing factor in the detail you have given is "what is the purpose of the loan?"

Without that, it's unknown what you really have.
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#1350357 - 03/01/10 09:44 AM Re: Commercial Loan (RESPA / GFE) [Re: RR Joker]
Chubby Offline
New Poster

Registered: 03/29/06
Posts: 9
Good question, so let me clarify.

Our Business Loan Application (as signed by the individual in this case) states, in part, that the “. . . Applicant is hereby applying for and requesting business credit and represents that it intends to and shall use the credit requested for business purposes only . . .”

In case you’re wondering, the word “it” as used in the Application applies to any business entity or individual listed on the first page of the Application.

My read of what I've transcribed from our Application (above) against the language contained in Reg. X Section 3500.5 yields the conclusion that I have a business purpose loan -- plain and simple. Exempt. You concur? Am I missing anything?

Again, thanks for your thoughts.

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#1350363 - 03/01/10 09:53 AM Re: Commercial Loan (RESPA / GFE) [Re: Chubby]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 40004
Loc: Bloomington, IN
Quote:
Reg. X Section 3500.5 yields the conclusion that I have a business purpose loan -- plain and simple. Exempt. You concur?


No.

Quote:
Am I missing anything?


Reg Z 226.3 and its Commentary.


Its the financial institution's responsibility to determine and document the purpose of the loan by applying the "tests" found in 226.3. The customer statement in and of itself is not sufficient documentation.

The applicant may have, 99.9% likely, completed the application they did because of the collateral offered and the loan officer didn't question the loan's purpose. If the applicant is borrowing against their rental property to send their kid to school it's a consumer purpose loan and subject to RESPA.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#1350364 - 03/01/10 10:00 AM Re: Commercial Loan (RESPA / GFE) [Re: Dan Persfull]
Kathleen B Online

10K Club

Registered: 12/27/00
Posts: 16548
Beware of commercial applications that have boilerplate language that state the loan is for a business purpose. Commercial lenders often think that gets them out of the consumer regs, regardless of the true purpose of the loan. Not so, especially when the bank included the statement in a form for the customer to sign.
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#1350373 - 03/01/10 10:18 AM Re: Commercial Loan (RESPA / GFE) [Re: Dan Persfull]
Chubby Offline
New Poster

Registered: 03/29/06
Posts: 9
Dan,

An interesting example to say the least and your answers/comments have been extremely valuable. Thank you again.

The example (request) I have pertains to the refinance of personal credit card debt amassed to purchase materials used in support of the subject three (3) unit apartment building. I'm pretty sure this qualifies as busines purpose financing despite the fact that the credit cards were of a personal nature (consumer). Matter of fact, one could argue the credit cards represent some form of construction financing. Anyway, back to the matter at hand -- I certainly don't see credit card refinance referenced as being exempt under the Reg Z 226.3 "tests" you clued me into. I'll ask again: Am I missing something?

To that end, your student loan example really serves to solidify a loan officer's need to ask the question: What's the $$ going to be used for? I appreciate your shining some light on that piece as it could no doubt come up as a real-world lending situation.

Please let me your thoughts concerning the above.

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#1350377 - 03/01/10 10:26 AM Re: Commercial Loan (RESPA / GFE) [Re: Chubby]
RR Joker Offline
10K Club

Registered: 11/15/02
Posts: 15753
Loc: The Swamp
Chubby, you would be absolutely amazed at how many business purpose loans aren't!

For rental, if the loan is to refinance the original debt, purchase or improve the property, it's exempt.

Can you prove the credit card debt was for the construction of the rental property by statements, perhaps? If so, I'd think it would qualify under "refinance".
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My opinion only.

Say You'll Haunt Me-Stone Sour

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#1350441 - 03/01/10 11:43 AM Re: Commercial Loan (RESPA / GFE) [Re: RR Joker]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 40004
Loc: Bloomington, IN
Quote:
Can you prove the credit card debt was for the construction of the rental property by statements, perhaps?


That's would be a possible key factor, BUT if the credit card debt is personal debt and used occasionally for business purposes it is still personal debt.

From the Commentary to 226.3:

Examples of consumer-purpose credit include:

A personal account used occasionally for business purposes.



Based on the information provided I would have to say you are paying off personal credit cards, the fact they were used for a business purpose is, in my opinion, irrelevant in this scenario.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#1350447 - 03/01/10 11:48 AM Re: Commercial Loan (RESPA / GFE) [Re: Dan Persfull]
RR Joker Offline
10K Club

Registered: 11/15/02
Posts: 15753
Loc: The Swamp
Dan, I think there could be a differnce between "occassionally" and "completely" used for BP. If they can prove all of the CC debt was for the construction, I believe they have a case for BP refi.
_________________________
My opinion only.

Say You'll Haunt Me-Stone Sour

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#1350489 - 03/01/10 12:23 PM Re: Commercial Loan (RESPA / GFE) [Re: RR Joker]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 40004
Loc: Bloomington, IN
I would be very cautious exempting it based on that premise.

I have my credit card for 2 or 3 years. It's for personal use. I decide I'm going to remodel my rental property. I pay off my credit card or pay it down considerably from personal funds because I don't want a "draw" note from the bank and want to do the remodeling on my on time frame and not have to worry about the bank approving draws, etc. I then use it (the credit card) to fund 100% of the remodeling of the rental. The remodeling is done 9 to 12 months later. I now pay off the credit card with a term loan from the bank and resume its (the credit card) use primarily for personal purposes.

I think you would be hard press to say you are paying off business debt.

How would you treat the loan if I funded the construction/remodeling from personal funds? Now that the construction/remodeling is complete I come to the bank to replenish my personal funds, this would not IMO be a business purpose loan. None of the proceeds are being used for the construction/remodeling of the rental property. It's being used to replenish my personal funds. Therefore a personal, family or household purpose. I would contend paying off my personal credit card that was used for the remodeling would be the same, I'm replenishing my "personal" availability on my credit card.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#1356640 - 03/12/10 10:23 AM Re: Commercial Loan (RESPA / GFE) [Re: Dan Persfull]
SoccerMomQueen Offline

Power Poster

Registered: 04/09/01
Posts: 4494
Loc: Life's a Beach :)
I have a refi which will combine a business purpose loan ($50,000) and a consumer purpose loan ($25,000) secured by primary residence. Am I correct in saying that RESPA does apply even though the majority of the funds are business purpose? No new money on this either.

Thanks,
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