Recently I thought I heard an examiner mention that bridge loans are exempt from HOEPA. I don't see that in the reg, unless it somehow fits under residential mortgage transaction.

Are bridge loans exempt from HOEPA?

Residential Mortgage Transactions are exempt from HOEPA. Generally, Bridge loans are for a RMT. See §226.32(a)(2) for more info on exempt transactions.

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Residential Mortgage Transactions are exempt from HOEPA. Generally, Bridge loans are for a RMT.

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David, can you tell me if there's any place that says that a bridge loan falls under the definition of RMT (or that it is specifically exempt from HOEPA)? I'm looking at the limitations for balloon payments in 226.32(d)(1)(i) and (ii). My thought is that, since bridge loans are specifically excluded from the balloon payment limitation, they must be covered by the rest of section 32 (or they wouldn't need to be excluded from this part). Your (or anyone else's) thoughts?

I know a lot of you are busy in Chicago, but I would appreciate it if, when you have a moment, you would help me with this issue. Thank you.

Deena, maybe David will be able to give us more supporting information later, but as for now my tendency is to agree with you.

Bridge loans are specifically exempted from the balloon payment requirements, however I do not believe they are exempt as a RMT from the other provisions of Sec. 32. Although the purpose of the bridge loan is to purchase a dwelling I do not feel they meet the definition of a RMT unless they are also secured by the dwelling being purchased or constructed. I am basing this on the the definition of a RMT from 226.2.

(Emphasis mine)

(24) Residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling .

So, Dan, you think if the bridge loan is secured by both the existing principal dwelling and the dwelling that will become the principal dwelling, it is a RMT and therefore is exempt from all of Section 32? I think most of our bridge loans are secured by both, so this would make a big difference for us.

I'm sorry for the delay Deena. Because I'm still recovering from being sick, I've been coming back from the ABA sessions and resting - not checking BOL and emails.

I believe Dan answered the questions for me, but let me recap. No where does it say that Bridge loans are exempt from HOEPA. HOEPA does not apply to RMT and all I was pointing out was that must bridge loans are to purchase a new home, which qualifies as a RMT. This exempts most from all of the requirements of HOEPA.

Thanks, David (hope you're feeling much better by now). Just to clarify, the bridge loan would only be exempt if we take a lien on the home being purchased/constructed, right? If we only take the existing home, it would be covered by the rest of Section 32 because it wouldn't meet the definition of RMT.

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A RMT is a loan for the purchase/construction of a new principle dwelling. It has nothing to do with collateral.

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Now I'm confused. The definition of RMT (see Dan's post above) specifically refers to a security interest in the consumer's principal dwelling.

I'm sorry Deena. You are absolutely right. I read the commentary to 226.24(a)(24) without looking at the regulation. Let me start over:

If you have a bridge loan secured by the new principal dwelling then this loan is exempt from HOEPA as it is a RMT.

Thanks very much, David (and Dan). I appreciate your help.

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So, Dan, you think if the bridge loan is secured by both the existing principal dwelling and the dwelling that will become the principal dwelling, it is a RMT and therefore is exempt from all of Section 32?

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A little late, I played hooky yesterday and went fishing and no we did not have a good day fishing but had a great day on the lake, but yes.