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#1858125 - 10/03/13 04:46 PM Construction-Commit to provide HELOC to take-out?
Tarhe Offline
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Joined: Nov 2006
Posts: 1,268
California
We are making a construction loan to a consumer to build his SFR and would like to keep the loan upon completion (15 month loan) - well-to-do customer. RESPA says that if we make a commitment to provide the permanent financing, then we lose the exemption under RESPA for the construction loan and must provide RESPA disclosures. We do not make traditional mortgage loans so the lender would like to "commit" to providing a HELOC where the first advance would pay off the construction loan. The mere fact that the take-out is a HELOC (vs. traditional mortgage) does't change things as far as RESPA requirements go, does it? We'd still lose our exemption for the construction loan?

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#1858142 - 10/03/13 05:19 PM Re: Construction-Commit to provide HELOC to take-out? Tarhe
RR Joker Offline
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RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
I would agree with that. Even if you might make the 'permanent' loan (lack of 3rd party commitment),you would be required to apply RESPA to the construction phase.
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#1991825 - 01/28/15 06:23 PM Re: Construction-Commit to provide HELOC to take-out? Tarhe
Jan94 Offline
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Joined: Mar 2001
Posts: 828
USA
Doing a search on this very topic and came across this post. I've been talking with my credit manager and they tell me that they should be able to do a HELOC as permanent financing on a construction loan and that the HELOC would be exempt under the mortgage rules. I'm not necessarily in agreement and this post does provide some support about RESPA. However, as of 1/1/2014 how would this carry over (or does it) to Reg Z and ATR, etc.? HELOCs are exempt (other than for HOEPA) but as this would be the "permanent" financing does that change anything? The construction portion would be exempt as I'm understanding it, but the permanent would not. Thank you for your consideration.

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#1991867 - 01/28/15 07:33 PM Re: Construction-Commit to provide HELOC to take-out? Tarhe
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,832
Bloomington, IN
The HELOC would be exempt from from the GFE and HUD Settlement Statement, however the HELOC exemption would not exempt the construction loan. Refer to RESPA, Reg. X 1024.5(b)(3).

The construction loan will be converted to permanent financing by the same lender.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1991932 - 01/28/15 08:48 PM Re: Construction-Commit to provide HELOC to take-out? Tarhe
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
Thank you -- yes the construction portion is no longer exempt under RESPA. I apologize as I was trying to cover multiple regulations at the same time. Even though the HELOC would be the "permanent", would it remain exempt under Reg Z, ATR, etc.?

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#1991964 - 01/28/15 09:18 PM Re: Construction-Commit to provide HELOC to take-out? Tarhe
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,832
Bloomington, IN
Yes.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#1992265 - 01/29/15 07:02 PM Re: Construction-Commit to provide HELOC to take-out? Tarhe
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
Thank you very much; I can exhale now smile

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