Executive Officer has $60,000 vacation loan on books with her bank. EO now wants to buy personal residence and will need loan of $400,000. Bank wants to classify the $400,000 loan as exempt from Reg. O limitations and classify the $60,000 loan as under the $100,000 limit. Can bank pick which loan will be under the unlimited exemption of Reg. O or is it stuck with the EO's first loan?

The vacation loan can only fit under the secured loan provision of Reg O 215.5(c)(3) (if appropriately secured) or under the $100,000 general credit limit of 215.5(c)(4). There is simply no other place it would fit. The proposed $400,000 loan to acquire a personal residence will only fit under section 215.5(c)(2).

By the way, "exemption of Reg O" isn't an appropriate term, since these loans will be subject to the regulation. The home loan will be permitted without an amount limit, other than the general individual and aggregate insider lending limits of section 215.4.

Can bank pick which loan will be under the unlimited exemption of Reg. O or is it stuck with the EO's first loan?

You're stuck with the $60,000 loan.

http://www.fdic.gov/regulations/laws/rules/4000-7340.html

With regard to your first question, the extension of credit would be authorized under Reg O for any amount pursuant to 12 C.F.R. § 215.5(c)(2) if the second home is the only residence of the executive officer which the bank has financed and secured by a first lien.


Sorry I pasted the wrong link. It's now corrected.

Well, Dan, you apparently read the $60,000 vacation loan in the original post as a vacation home loan, and, given its dollar amount, that makes sense. Obviously, I read it literally, as a loan that financed a vacation (I must have been thinking about a long stay at Disney World). If the word "home" is assumed, I'd agree. The $60,000 loan is the one that gets to be the only one fitting the (c)(2) "pigeonhole" as long as it's a residence of the EO. That would mean that the $400,000 loan would have to be obtained from some other source unless the EO pays off the $60,000 loan first (through refinancing elsewhere or selling the vacation home).

Well, shoot! And I mean that figuratively, not literally, so that no one gets alarmed about firearms and bans me from this website.

Gosh John, I never even fathomed someone borrowing 60 grand for a vacation.

Daydreams, perhaps, Dan?

You are only allowed one loan under (c)(2), but why can't you pick??

That's a good question and I don't know the answer. However the FDIC guidance implies if you already have a residence of the EO financed with a first lien then the second loan does not qualify under (c)(2).

They could always call their regulator for guidance.

Then I would just say the first loan was made under the other purpose category

As long as one of them was under $100,000 what difference does it make? There are no dollar amounts referred to in the opinion and it can only be used under the specific circumstances under which the question was asked. If the first loan was for over $100,000 than I agree the opinion would apply.