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#2022361 - 06/23/15 09:25 PM Commercial loans secured by residential property
Eadp Offline
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Does residential property include rental houses and borrower's residences that secure commercial loans?

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Flood Compliance
#2022380 - 06/23/15 10:43 PM Re: Commercial loans secured by residential property Eadp
Kathleen O. Blanchard Offline

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Yes, why?
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#2023470 - 06/26/15 07:03 PM Re: Commercial loans secured by residential property Kathleen O. Blanchard
Love Cruising Offline
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Under the new escrow requirement section 339.5 (a) (2) (i) would that apply to an investment property?

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#2023542 - 06/26/15 09:08 PM Re: Commercial loans secured by residential property Eadp
David Dickinson Offline
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Here's my analysis what the Final Rule says about §339.5:

Must escrow flood insurance on all loans secured by “residential improved real estate or a mobile home” (regardless if it is for a consumer purpose) that is MIRE’d on or after 1/1/16 and located in a SFHA.
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#2024165 - 06/30/15 07:07 PM Re: Commercial loans secured by residential property Eadp
Scooter Offline
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Does residential property include rental houses and borrower's residences that secure commercial loans?

I'm confused by Kaybee's "yes" response EADP's question, and which appears to be supported by David.

xxx.5(a)(2)(I) provides an exemption if the loan is, "... an extension of credit primarily for business, commercial or agricultural purposes."

Prior to the final rule, I kept hearing that commercial purpose loans would require escrow for flood insurance but the exemption is there. What am I missing?

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#2024169 - 06/30/15 07:28 PM Re: Commercial loans secured by residential property Eadp
Kathleen O. Blanchard Offline

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I asked "why" because the initial question did not explain the context. Business purpose loans are exempt from escrow as are HELOCs. Neither product type has escrow systems, as many comments pointed out, hence the exemption.

I grabbed this from the first regulator section but it is identical in all (FRB, OCC, FDIC, etc.)

Loan-Related Exceptions
Section 102(d) of the FDPA, as amended by section 25 of HFIAA, contains several exceptions to the general escrow requirement. These exceptions include:
(i) loans that are in a subordinate position to a senior lien secured by the same property for which flood insurance is being provided;
(ii) loans secured by residential improved real estate or a mobile home that is part of a condominium, cooperative, or other project development, provided certain conditions are met;
(iii) loans that are secured by residential improved real estate or a mobile home that is used as collateral for a business purpose;
(iv) home equity lines of credit;
(v) nonperforming loans; and
(vi) loans with terms not longer than 12 months.

These exceptions are in addition to the small lender exception applicable to certain regulated lending institutions that have total assets of less than $1 billion set forth in section 102(d) of the FDPA, as amended by section 100209 of Biggert-Waters, discussed below. Numerous commenters supported these exceptions.
Last edited by Kathleen B; 06/30/15 08:25 PM. Reason: for clarity
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#2024198 - 06/30/15 08:18 PM Re: Commercial loans secured by residential property Eadp
Scooter Offline
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Thank you.

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#2024201 - 06/30/15 08:24 PM Re: Commercial loans secured by residential property Eadp
David Dickinson Offline
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This is interesting scooter and KB. I have been reviewing the Flood Final Rule that was issued on 6/16/15 form the OCC/FRB/FDIC/FCA & NCUA. On page 48 of the pdf version, it states in the section by section analysis:
A farm credit commenter suggested that the conditions should only apply to an institution’s consumer loan portfolio. The Agencies note that the statute applies the conditions to any loan secured by residential improved real estate or a mobile home. Therefore, based on the plain language of the FDPA, as amended, and the Agencies’ regulations, the institution should include all loans secured by residential improved real estate or a mobile home, regardless of whether the loan is for a consumer purpose.

This same document does not have an exemption in the regulation portion.

Today, our Team was discussing the changes and another consultant pointed out the exception in §___.5(a)(2)(i) that indicates escrows are exempt for non-consumer purpose loans. While we knew this was in the law, it wasn't in the version of the Final Rule I was reading. The other consultant was looking at the 6/22/15 Final Rule.

Apparently, the issuance I was reviewing was not the final version and contained some mis-information. I baffled by this and a little embarrassed.

Thanks for questioning this scooter and for the correction KB.
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