We have a borrower originally intending to cash-out refinance an investment property they own to provide downpayment funds on the purchase of a primary residence. They have changed their loan request from a cash-out refi to a 2nd mortgage on the investment property to obtain cash equity from that property for the downpayment for the new primary residence as they now intend to list and sell the investment property. Our 2nd mortgage will now be 12 months with I/O payments and will pay off upon the sale of the investment property. I need to redisclose this....since it was RESPA covered before, is it still RESPA?

Based on 1026.43(a)(3)(ii) you can exempt it from the ATR requirement.

Under RESPA temporary or bridge loans are exempt under 1024.5(b)(3). What you need to determine for RESPA is do you have a temporary/bridge loan or do you have a short term loan.

David's HMDA Temporary Financing article may help you make that determination.

http://www.bankerscompliance.com/compliance-resources/free-downloads.htm

I would like to ask for clarification for temporary financing loans, which we rarely make, but have one in process. If a consumer purpose loan secured by a dwelling is deemed temporary financing (structured as a 12 month interest only, balance due at maturity), is the following correct:

1. loan is exempt from ATR requirements
2. loan is subject to TILA, so subject to TRID (and subject to rescission if collateral is borrower's primary residence)
3. loan is exempt from RESPA
4. loan is exempt from HMDA reporting
5. GMI should not be collected (unless loan proceeds for purchase or refi of primary dwelling)

That looks correct, however, be certain you are dealing with temporary and not short term. You say 'balance due at maturity'. How will it actually be repaid?

Yes, the bridge loan vs. short term is the tricky part. I've read lots of posts debating bridge loans - and am still unclear, but believe this situation would qualify. Here are the details:

12 month, interest only loan secured by primary residence to provide cashout intended to be used for down payment for future, unknown new primary residence purchase. To make a future offer more attractive, the borrower wants cash in hand to document he will not have a sale contingency on his purchase and sale agreement.

Loan will be paid off either from sale of collateral or from borrower's other financial assets or refinancing (borrower with strong financials.) We are assuming the borrower's stated intent will be to purchase a new primary and sell the existing primary within the loan term, but we don't know if borrower will find a new primary residence within the loan term.

I believe this qualifies as a bridge loan, as David's discussion on temp financing for HMDA states: While the term “bridge loan” is not defined, it is generally understood as the interim financing between the purchasing of one property and the selling of
another." So while we don't know for certain how the loan will be paid off, the purpose is to "provide interim financing between purchasing and selling."

Sounds like a short term home equity loan to me - who knows what he is going to do with the funds.

Yes, but I believe I have read that we "can/should" go with the borrower's stated intent. The current primary is listed for sale, and the loan is intended to be paid off by proceeds from that sale which is intended to correspond with the purchase/financing of his new primary. I know this structure of bridge financing differs from when taking both properties as collateral and allowing release/paydown when the original primary sells, but is it not still: "interim financing between the purchase of one property and the selling of another?"

https://www.bankerscompliance.com/wp-content/uploads/2016/09/HMDA-and-TEMPORARY-FINANCING.pdf

Updated link to Bankers Compliance article that Dan referred to.

Would this loan be subject to HPML or HPCT?