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#1498837 - 01/21/11 09:14 PM Exempt or non-exempt from Reg Z?
raitchjay Online
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Dan (or anyone else)....this brings up a question on this issue i'm still fuzzy on, so i'd appreciate your guidance. Let's say a rent home is purchased using say a 5 year balloon with a loan amount of say $50,000. Exempt from Reg. Z. After 59 months, with the balloon note getting ready to mature, the borrower comes in to refinance, and says, for the sake of argument, that they want to renew (refinance) this loan, but they'd like $2,000 extra to fix the roof on their own primary residence. I can see this two ways. One: the balloon was coming up anyway and the bank was going to refinance this loan regardless. As such, the "purpose" of the loan, in reality, was to refinance this business purpose loan. Two: the "consumer" purpose of wanting the extra $2,000 throws the entire refinance into a consumer purpose loan. Which is correct?
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#1498866 - 01/21/11 09:52 PM Re: Exempt or non-exempt from Reg Z? raitchjay
Dan Persfull Offline
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There is no clear cut guidance in the regulation when they reference the "primary purpose" of the loan.

Some use the 50/50 rule where whatever the purpose for more than 50% of the loan proceeds are for is how they code the loan.

Others will look at what was the primary reason for the request to refinance the loan is for.

In the scenario you describe above I would look at it as a primary purpose of refinancing a business purpose balloon payment coming due with a secondary consumer purpose for HI. IOWs I would treat it as a business purpose debt.

If one year into the loan the borrower wants to refinance the rental property primarily to get cash out for a consumer purpose then in that scenario I would treat it as a consumer loan request. Others would look at the 50/50 rule regardless.
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#1498871 - 01/21/11 09:57 PM Re: Exempt or non-exempt from Reg Z? Dan Persfull
raitchjay Online
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Thank you Dan. You touched on everything in that scenario that was on my mind. Great info.
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#1498874 - 01/21/11 09:59 PM Re: Exempt or non-exempt from Reg Z? Dan Persfull
Richard Insley Online
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If you can accomplish what the borrower needs via modification of the original note, you don't have a "refinance" & therefore no purpose decision needs to be made.
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#1498877 - 01/21/11 10:02 PM Re: Exempt or non-exempt from Reg Z? Richard Insley
raitchjay Online
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More good info...thanks Richard.
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#1501769 - 01/28/11 03:17 PM Re: Exempt or non-exempt from Reg Z? raitchjay
Comply101 Offline
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Here's another one.

consumer comes in and does a cash-out refi of a rent house that they own outright with a loan purpose of "personal investments". Following the flow chart in the FDIC compliance exam manual, it appears to me that this loan is covered by Regulation Z because it is for personal use, consumer credit extended to a consumer, by a creditor, and secured by real property.

lender is saying it's business purpose but I can't find any evidence of that in the file. Are there any exemptions that I'm missing?

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#1501770 - 01/28/11 03:18 PM Re: Exempt or non-exempt from Reg Z? Comply101
RR Joker Offline
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Personal purpose, subject to Z. It's not for the purpose of purchase, refi of purchase, maintenance or improvement of the rental property.


ETA: Ask your lender how he gets business purpose out of a statment that SAYS personal investments.
Last edited by RR joker; 01/28/11 03:19 PM.
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#1501789 - 01/28/11 03:34 PM Re: Exempt or non-exempt from Reg Z? RR Joker
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Thank you. I think the thought process was that it was the refinancing of a rent house, but the purpose was clearly to get the cash out of it for personal investments. I guess I can see the confusion but I can't make the case for business purpose.

This would also make it subject to RESPA right?

Drats! I didn't want to have to write this one up.

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#1501799 - 01/28/11 03:43 PM Re: Exempt or non-exempt from Reg Z? Comply101
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yes
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