Thread Options
#2018710 - 06/05/15 03:48 PM TIL on Soft Second
Nico Offline
New Poster
Joined: Mar 2011
Posts: 14
Little Rock, AR
Our housing authority has a bond DPA soft second program that has no interest rate and no payments unless the borrower sells, refinances, or pays off the first lien within the first five years. If the loan becomes repayable, the amount repaid is prorated by the amount of time from the closing date. The longer it has been, the less the borrower has to pay back. We have determined that these loans are subject to RESPA/ TILA, and are setting up the loan program in our LOS.

How in the world do you show the payment stream on the TIL for a loan that may or may not be repayable, and for which you have no idea what amount would need to be repaid? I'd appreciate your thoughts!

Return to Top
Lending Compliance
#2018738 - 06/05/15 04:21 PM Re: TIL on Soft Second Nico
Richard Insley Offline
10K Club
Richard Insley
Joined: Oct 2000
Posts: 10,049
Toano, VA
Originally Posted By Nico
We have determined that these loans are subject to...TILA
How about walking me through this decision.
_________________________
...gone fishing.

Return to Top
#2018762 - 06/05/15 05:24 PM Re: TIL on Soft Second Nico
Nico Offline
New Poster
Joined: Mar 2011
Posts: 14
Little Rock, AR
It is a closed end lien secured by a property, and does not meet any of the exemptions listed in 226.3. While it is a soft second, there is still a Mortgage signed and recorded.

Return to Top
#2018869 - 06/05/15 11:33 PM Re: TIL on Soft Second Nico
Richard Insley Offline
10K Club
Richard Insley
Joined: Oct 2000
Posts: 10,049
Toano, VA
Who is the creditor for the second--your bank or the housing authority?
_________________________
...gone fishing.

Return to Top
#2021732 - 06/20/15 01:19 AM Re: TIL on Soft Second Nico
Richard Insley Offline
10K Club
Richard Insley
Joined: Oct 2000
Posts: 10,049
Toano, VA
It's been 2 weeks since Nico started and abandoned this thread. Even though no one else jumped in, I'd like to advance this discussion for the benefit of others.

This topic isn't new. My first encounter with multi-party community/housing development/redevelopment financing was more than 30 years ago. Financing with a community redevelopment goal can be very creative, so the bank's role may be quite different than would be the case in a garden variety mortgage loan.

In Nico's case, the "housing authority has a bond DPA soft second program." That could mean many things, but most likely there are two promissory notes and the housing authority, not the bank, is the creditor for the "soft second." If so, the responsibility for TIL disclosures falls on both lenders--not just the bank. The bank is responsible for all disclosures relating to the first mortgage loan and the housing authority is responsible for all TIL disclosures for the 2nd. With this financing arrangement, the bank would have no responsibility (or right) to "show the payment stream on the TIL for a loan that may or may not be repayable."

For the sake of discussion, let's say the housing authority recognizes its obligation to comply with Regulation Z but, lacking the necessary knowledge and software, has contracted with the bank to prepare the TIL disclosures on its behalf. Before diving into the mechanics, dollars, and dates of a TIL disclosure, it would be necessary to confirm that the housing authority is the creditor and that the financing is consumer credit.

Section 1026.2(a)(17) defines "creditor" as "a person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract." Most likely, a housing authority "regularly" provides financing...but does this financing meet the definition of "consumer credit"?

Section 1026.2(a)(12) defines "consumer credit" as "credit offered or extended to a consumer primarily for personal, family, or household purposes." There's no question that the recipient of the financing is a consumer and the purpose is personal...but is the financing "credit"?

Section 1026.2(a)(14) defines "credit" as "the right to defer payment of debt or to incur debt and defer its payment." Although there may be a debt, in the event the consumer performs all of the obligations spelled out in the various elements of the contract (the two mortgage notes and deeds of trust), the "soft second" is totally forgiven. Since the borrower will enjoy total forgiveness of debt, not deferral, I would call the housing authority's contribution to the overall financing a "gift", not credit. If there is a gift (an not "credit"), there can't be "consumer credit" and if there's no "consumer credit", then Regulation Z does not apply. If Regulation Z does not apply, then there's no need for anyone to disclose the conditionally forgiven payments.

As previously stated, this kind of financing can be very creative and unusual, so it's essential that the person making decisions about TIL disclosures understand all of the terms of the legal obligations binding the first mortgage lender, housing authority, and borrower. When making these decisions, your guiding principle must be Section 1026.17(c)(1)--which tells you that "the disclosures shall reflect the terms of the legal obligation between the parties"...no more and no less.
_________________________
...gone fishing.

Return to Top

Moderator:  Andy_Z