A commercial loan in the amount of $200,000 was done 3 years ago to purchase a rental house. Now the customers want to refinance this loan with a cash out of $20,000 to consolidate personal debt and make some improvements to their personal residence. Since the majority of the money was originally for a business purpose, would we refinance on a commercial note, or now a consumer note, since the additional funds are for a consumer purpose?

I'm glad you asked this question because I've been in lending, compliance, and banking so long, I think I may have missed a change in this area. It used to be if >50% of proceeds went to HI, that would be the designated purpose--then I seem to remember if any of the proceeds went to HI it would be considered the designated purpose. Love to know what the BOL responses show.

For HMDA purposes, we will report it as a HI no matter the portion of the HI amount; even if it is less than the refinanced portion that was originally used to purchase the rental.

I should clarify that I would like to know if this is a disclosable loan under Reg Z and RESPA. I cut and copied a processor's question, but essentially, they want to know if they need to process it as a consumer loan or a commercial loan.

Personally, I do not like to mix and match funds. If the bank is willing to mix these new consumer funds into this loan (bad idea IMO), if the vast majority of the funds remain commercial, leave it as commercial. If the major purpose was changing to consumer, it would be consumer if it met the following statement from the commentary:


6. Business credit later refinanced. Business-purpose credit that is exempt from the regulation may later be rewritten for consumer purposes. Such a transaction is consumer credit requiring disclosures only if the existing obligation is satisfied and replaced by a new obligation made for consumer purposes undertaken by the same obligor.

Thank you for your help...I appreciate it.