Does anyone have further clarification on builder loans where there is one loan and one appraisal that would encompass multiple dwellings. Do they have to give the appraisal disclosure and a copy of the appraisal for each dwelling that is being built or can they just give one disclosure and one appraisal?

The CFPB has stated via the ABA that builder/developer loans are exempt from the upcoming ECOA Valuations Rule. From a Q & A:

"Would the ECOA Appraisal Rule require that lenders provide appraisal reports to applicants in instances where the applicant is a developer and the loans are secured by inventories of one-to-four unit dwellings?

No. Pursuant to Section 1002.14(b)(2), the ECOA Appraisal rule applies to any credit facility involving “a dwelling” which means “a residential structure that contains one to four units whether or not that structure is attached to real property.” This language is crafted in the singular and is intended to exclude applications involving multifamily dwellings or inventories of homes. If more than one dwelling secures a credit facility, the credit facility is exempt from the rule.

In setting forth this definition, CFPB states that it is adopting the existing definition for “dwelling,” explaining that it is appropriate to continue to use the existing definition of “dwelling” because “this definition was in place when Congress amended ECOA section 701(e) and used the term ‘dwelling’ in specifying the scope of the requirement.” 78 F.R. 7216, 7236. The “existing definition” that CFPB alludes to was finalized in a 1993 ECOA rulemaking, published by the Federal Reserve Board via Federal Register in December 1993. See 58 F.R. 65657. In that issuance, the Federal Reserve Board stated that “extending the coverage of the appraisal requirements to include multifamily dwellings could impose a significant burden on institutions which could outweigh the benefits to consumers.” 58 F.R. at 65658. In reaching this determination, the Board explicitly rejected extending “the right to receive a copy of an appraisal report to developers of multifamily properties, who generally were not identified by the Congress as experiencing lending discrimination through the appraisal process or as having difficulty in receiving copies of appraisals.” Id. On that basis, the CFPB stated that inventory of developers of multiple single family dwellings would not be covered in this Final Rule."

Bisco -- Can you supply a source link for what you have provided above?

Regardless of the actual source, I think it is in-line with the CFPB thoughts as outlined in footnote 79 of the final regulation. Whether the transaction involved 3 separate 4 unit buildings or an inventory of single family homes, I can see the parallel:

79 With respect to the example raised by a creditor and two national creditor associations – three four-unit buildings
operated as a 12-unit apartment complex, the text of the rule makes clear that a four-unit residential building would
be a dwelling, but a 12-unit apartment complex is not. Thus a transaction secured by a four-unit residential building
would be covered by the rule, but a transaction secured by the entire 12-unit apartment complex would not be.
Because this question can be analyzed in a straightforward manner by reference to the text of the rule, the Bureau
does not believe that further commentary is needed for this to be apparent. Similarly, the definition of “dwelling”
refers to the example of an “individual condominium or cooperative unit,” but not to a cooperative building as a
whole, even though such a building may contain several individual units.

Thanks, Randy. I had not seen that analysis.

So based on the CFPB's comments to the ABA, would this new rule apply to an education loan secured by more than one single family rental properties? e.g. borrower puts up four of her rental houses to get a loan.

It would be covered as you are talking about 4 separate 1-4 family dwellings in your example.

So, what the above (original poster) is describing sounds like it would be something like a Master Note for multiple construction loans within a single subdivision developement perhaps?

What that analysis actually says to me is that if you have 3 1-4 buildings on one parcel and are operating it as apartments, in essence treating it like an entire complex of 12 units...it doesn't apply.

However, if you have a builder who plans on building 1 family homes in a subdivision on separate lots, I'm not seeing how an exemption would parallel the analysis.

Neither do I.

"The CFPB has stated via the ABA that builder/developer loans are exempt from the upcoming ECOA Valuations Rule. From a Q & A:"

Just to make sure I am reading this correctly, Are construction loans (1 single family home per loan) to a builder exempt from the Reg B 3 day before closing rule? Constructions loans directly to the consumer, it still applies?

That truly makes no sense. Reg B has never been a consumer regulation...it doesn't list any exemptions for any purpose/reason/etc. Why in the world would they make an exemption for a specific type of construction loan?

Thats what I'm trying to verify. There are some in my organization who believe construction loans to a builder are exempt. I can't find it in any of my material, so I was wanting guidance to where the exemption might be listed in case I have just overlooked it. If there is no exemption, I would just like someone to agree with me :-)

Sorry, Parrot mama...I didn't realize you were quoting what was above.

At this time, I see no such exemption. All I see from footnote 79 is in regard to multi-family. I see no correlation between it and other loans on 1-4 unit secured dwellings.

Thanks.

So the more I read this thread and the more I ask compliance gurus, the more confused I get... Following is how our developer loans work. Are we required to follow the Reg B Appraisal guidelines?

Lender obtains an approved guidance line, but we don’t technically have a signed ‘Master Note’ with the borrower, just an internal approval for the borrower for up to a maximum dollar amount with specific stipulations with regard to interest rate, terms, fees, spec limitations, etc. This enables the lender(s) to close loans as needed without having to go through the approval process each time. The borrowers then send in for specific loan requests. That request might be to fund a project for 5 homes to be built or 20 homes to be built.

Unless the Bureau publishes that Q&A and gives it interpretive status, I don't see that the ABA's statement holds much water. Would it make sense to exempt projects involving more than one dwelling? Yes. Is it clear that such an exemption exists? I don't think so.

I agree...there is no exemption to date for that situation.

I have received some very good questions from our commercial business line that I'm hoping to get some feedback on. Does it have to do with the number of parcels being taken or how many 1-4 family dwelling sit on one parcel. I have read footnote 79 but I'm not seeing the driving factor. Would the following examples qualify for the Reg B appraisal requirement? any help would be greatly appreciated.

1 Parcel with 2 duplex

2 duplexes taken as collatral that are part of a 12 units complex.

Resort that has 1 parcel with 20 single family cabins on it.

Resort that has 20 single family cabins but sits on multiple parcels.

I'll take a stab...

Yes, multiple 1-4 unit dwellings.

Yes, again multiple 1-4 unit dwellings.

And No to the last two as I do not feel the cabins, as part of a resort, are considered to be residential structures covered under this rule.

I would probably disagree on the last one - plus how often would you ever see such a transaction. Each parcel would probably have to be appraised separately.

I think the rule applies to the first two examples, but the second two would require commercial appraisals, so the rule would not apply.

Once you have 5 or more units in a development, a commercial appraisal is required, regardless of how many parcels there are.

Yeah, I was kinda wincing typing that one too.

In footnote 79 it states that one four unit building would be covered under Reg B, but if we took 3 four unit building as part of the 12 unit apartment complex it does not apply. However, based on your answer above, if I take two duplexes as part of a 12 unit complex, it applies.

If you could help me understand how the duplex scenario applies, I would appreciate it. I must be missing something.

If they are actual duplexes, it would apply as they are 1-4 family dwellings.

If you have a deal that is a 12 unit apartment complex, but the complex consists of 3 buildings with 4 units per building, it would be commercial and not apply.

You would have to look at how the deal is structured.

Take that same situation and make it 12 condo's separated into 3 buildings and you would have 12 1-4 family residences.

I hope that just made sense!

if I take two duplexes as part of a 12 unit complex, it applies.

If you can do that, it is not a 12 unit complex.......